But beginning December 1, refinancing will likely cost homeowners more. Fannie Mae and Freddie Mac will charge a new — and hotly contested — “adverse market fee” on refinanced mortgages.
Fannie and Freddie, which guarantee roughly half of the country’s mortgages, do not directly give mortgages to borrowers but instead buy mortgages from lenders and repackage them for investors. The new fee will be levied on the lenders, requiring them to pay an extra 0.5% of the loan amount as a one-time charge to the total loan amount.
That comes out to about $1,400 on an average mortgage, according to the Mortgage Bankers Association.
But the fee will likely be felt by homeowners as lenders are expected to pass the cost on.
“Whether you pay it up front or over the life of a loan, you’ll pay it,” said Mike Fratantoni, chief economist at MBA. “And it may make the difference of whether it is worth it to refinance or not for many people.”
He estimates that the added cost will result in a refinance that is 10 to 15 basis points higher than a purchase loan.
Nearly 20 million homeowners could benefit from refinancing at current rates, according to Black Knight, a mortgage data company. That includes 4.5 million homeowners who could save at least $400 a month and 2.7 million who could save $500 or more each month by refinancing at today’s rates.
Jumbo loans, or those too large to be purchased or guaranteed by Fannie and Freddie, are not directly effected, although those loans carry higher interest rates to begin with. Borrowers getting FHA, VA, USDA Rural, or other loans not conforming to Fannie Mae or Freddie Mac standards are not subject to the fee either.
It is possible to avoid the fee by refinancing with a bank or online lender that originates and either holds onto the loan or sells it to private investors, rather than selling to Fannie or Freddie. But those kinds of loans often come with higher rates.
The extraordinarily low rates are driving a lot of the volume, said Fratantoni, both for loans to purchase a home and also to refinance a current mortgage.
Fratantoni said this fee will be baked into the pricing from now on.
“Our forecast is that mortgage rates will be trending higher in 2021,” he said. “That was going to be happening anyway leading to lower refinance volumes next year. This fee will add to that.”
Currently, the FHFA anticipates $4 billion in loan losses due to projected forbearance defaults, $1 billion in foreclosure moratorium losses and $1 billion in servicer compensation and other forbearance expenses.