FannieMae/FreddieMac issues half point fee on Conventional Refinances

Fannie Mae and Freddie Mac (regulated by the Federal Housing Finance Agency) announced they are adding an “Adverse Market Refinance Fee” of 50 basis points (half a point) that is effective on refinance mortgages delivered to Fannie Mae or Freddie Mac starting September 1, 2020.   This is a huge hit to mortgage lenders and eventually to borrowers across the entire country.

What this means is that if you have a conventional refinance that is set to close and you are not locked in already, the pricing for the rate you choose will be .50% higher in points.  For a $400,000 loan amount , the cost will be $2000 higher in points than a purchase mortgage.   A half point in fee (50 basis points) will translate to roughly .125 to .375 higher interest rate.

This will also mean that if you have already locked your loan before the announcement, lenders will be reluctant to extend your rate lock period for free.  Make sure you get everything to the lender as quickly as you can to make sure you make you lock period!

This hit to pricing impacts mortgages that are already in process.  It might take weeks after you close before the loan is physically delivered to Fannie Mae or Freddie Mac.   The lenders will have to eat the money if you deliver on you lock period.   As you can imagine, lenders and lending organizations are pushing for a reversal of this fee OR at least a delay.  This has the appearance of a huge “tax” for everyone refinancing their home at the very time when government is sponsoring bailouts and free money to weather the COVID storm.

If you have not yet refinanced, you should still look into whether it is worth it or not.  Rates are near historic lows even with this unexpected price increase by the government.