A fee that made refinancing federally backed mortgages more expensive during the pandemic as more homeowners tried to take advantage of historically low mortgage rates will end Aug. 1.
Area politicians, real estate agents, and mortgage industry groups were among those who wanted the Federal Housing Finance Agency to rescind the refinancing fee on home loans backed by Fannie Mae and Freddie Mac, the government-backed mortgage financiers. The 0.5% fee, which took effect in December and was meant to cover projected losses due to the pandemic, added $1,000 or more to the average cost of refinancing.
Kyle Manseau, senior vice president of operations at Allied Mortgage Group, based in Bala Cynwyd, called eliminating the fee “low-hanging fruit in terms of having an impact with borrowers and affordability.”
“We had to turn away some borrowers who were just on the edge of qualifying” for a lower mortgage rate because they had too much debt and couldn’t afford the fee, he said. Those homeowners now will be able to take advantage of low rates, he said.
The 30-year fixed mortgage rate averaged 3.11% in 2020, and 2.94% the first half of 2021, according to an analysis of monthly averages by Freddie Mac.
Pandemic policies by the Federal Housing Finance Agency and Fannie Mae and Freddie Mac “were effective enough to warrant an early conclusion” of the added fee, the agency said in a statement. Sandra L. Thompson, the agency’s acting director, said elimination of the fee “furthers FHFA’s priority of supporting affordable housing while simultaneously protecting the safety and soundness” of the government-sponsored enterprises.
Greg McBride, chief financial analyst at Bankrate, called the fee “ill-conceived.” It meant borrowers refinancing a $300,000 loan would lose $20 a month in potential savings, he said.
“The justification for the fee when it was sprung on the market was that it was necessary to pay for the costs of forbearance and pandemic-related payment relief incurred by Fannie Mae and Freddie Mac,” McBride said in a statement. “But the homeowners punished were those that weren’t high risk, weren’t in need of forbearance or payment relief, and were, in fact, reducing their risk to the mortgage finance marketplace by reducing their rates and monthly payments. It never passed the smell test to begin with.”
Fannie Mae and Freddie Mac charged the fee to lenders, who largely passed the fee on to homeowners. McBride advised customers to shop around for lenders, because some agents may see an opportunity to continue to charge extra for refinancing to try to recoup money lost due to competition and low rates.
Roughly 65% of mortgage applications last week were refinances, according to the Mortgage Bankers Association.
Bob Broeksmit, president and chief executive officer of the association, said the group looks forward to working with the Federal Housing Finance Agency and lawmakers “on ways to continue to protect homeowners and taxpayers while ensuring a liquid, well-regulated mortgage market.”
“With less than 2% of [Fannie Mae and Freddie Mac] loans in forbearance and continued home price appreciation resulting in significant borrower equity, there is no need for the fee,” Broeksmit said in a statement.
» READ MORE: Want to go for a swim? Rent your neighbor’s pool.
Homeowners nationwide average 68% equity in their homes, according to the valuation-focused real estate brokerage HouseCanary. That’s roughly $282,000 in equity on a $414,000 home, the national average home value.
The elimination of the federal refinancing fee “is great news for the majority of homeowners that have conventional mortgages that have the opportunity to refinance,” said Robert Humann, chief revenue officer at Credible.com, a marketplace of lenders. Given the uneven economic recovery, he said, even small changes to homeowners’ interest rates “can be very meaningful to family, individual household budgets.”
And because Fannie Mae and Freddie Mac began charging the fee in reaction to worries over the pandemic, rescinding it “means they are bullish about the future and the rebounding economy,” he said.
Rates eventually will trend upward from their historic lows, he said, so “now there is a very good window of opportunity for people.”
The Philadelphia Inquirer is one of more than 20 news organizations producing Broke in Philly, a collaborative reporting project on solutions to poverty and the city’s push toward economic justice. See all of our reporting at brokeinphilly.org.