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The Federal Housing Finance Agency (FHFA) has announced that it will end the 0.5% adverse market refinancing fee on Fannie Mae and Freddie Mac mortgages effective August 21.
The fee was put in place in December 2020 to subsidize Covid-related expenses that Fannie and Freddie incurred during the pandemic.
The lenders then passed this burden on to the borrowers. The Mortgage Bankers Association (MBA) estimated that the fees cost borrowers an average of $ 1,400 per loan.
The big question is, will lenders return these savings to borrowers once the fees are lifted?
“When the fee was announced last year, we saw the fare offers go up by about an eighth of a point to factor in that cost. It wouldn’t surprise me to see the fares go down in a comparable fashion once this comes in. force, ”says James Baublitz. , Managing Director of Pipeline Analytics.
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One more step to make housing more affordable
The announcement of the end of these fees comes just weeks after the Biden administration fired FHFA director Mark Calabria and replaced him with interim director Sandra Thompson – a move many experts agreed was to help advance Biden’s affordable housing initiatives.
“MBA applauds Interim Director Sandra Thompson’s decision to eliminate unfavorable market refinancing fees,” said Bob Broeksmit, President and CEO of MBA, in a statement. “We have asked the FHFA to revoke this policy and we are grateful for reviewing the data and responding to our request. With less than 2% of loans (Fannie and Freddie) in forbearance and continued appreciation in house prices resulting in significant borrower equity, fees are unnecessary.
According to Black Knight, a data analytics company, 13.8 million homeowners could potentially save around $ 293 per month if they refinance their mortgage with the current interest rate of 2.88%. This is based on Black Knight’s eligibility standards defined as borrowers with 30-year mortgages, a maximum loan-to-value ratio of 80%, and credit scores of 720 or higher.
Jason Lee, head of capital markets at Flagstar Bank, told Forbes Advisor that the actions of the new FHFA management to remove the 50 basis point adverse market refinancing fee on refinanced mortgages is encouraging.
“We believe it offers the potential to make refinancing more affordable for consumers,” Lee said.
When refinancing makes sense
Refinancing your mortgage at a lower rate can be a smart cash move, saving you hundreds of dollars a month, but there are some factors to consider before you get started.
First of all, you need to factor in the closing costs. Refinancing a mortgage doesn’t come cheap, so you’ll need to consider how much money you could save by refinancing. You also want to consider how long you plan to stay in your home. If you are moving in the next few years, refinancing probably doesn’t make sense because you need time to recoup the high fees.
Refinancing fees can cost anywhere from 3% to 6% of the principal of your current mortgage. For example, refinancing a mortgage loan of $ 250,000 can cost between $ 7,500 and $ 15,000.
Make sure that the savings over time outweigh the cost of refinancing. To get an idea of how much you can save, use a refinance calculator to calculate the numbers.
Keep in mind that refinancing with no closing costs may not require an upfront fee, but the lender will factor in those fees at a higher interest rate or higher principal balance. You will therefore still owe the closing costs.