New mortgage refinance fee goes into effect: What to know

What to expect for mortgages in 2021

Barry Habib, founder of mortgage and bond platform MBS Highway, looks at the record-low mortgage rates and offers interest rate predictions for 2021.

A mortgage refinance might cost borrowers more than they expect despite low rates, now that an additional fee has taken effect.

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As of Tuesday, borrowers will be subject to a new 0.5 percent adverse market fee, which was announced by Fannie Mae and Freddie Mac over the summer.

That means that some borrowers who did not secure their rates could face unexpected, higher costs. But those in the process of working with lenders have probably already had those expenses baked in.

REFINANCING YOUR MORTGAGE JUST BECAME MORE EXPENSIVE, HERE’S WHY 

In a statement issued earlier this year, Freddie Mac acknowledged the policy was a consequence of the coronavirus pandemic.

“As a result of risk management and loss forecasting precipitated by COVID-19 related economic and market uncertainty, we are introducing a new Market Condition Credit Fee in Price,” the statement read.

The fee will be imposed on both cash-out and no cash-out refinance mortgages sold to the GSEs valued at $125,000 or higher. It will not, however, affect purchase mortgages.

VA and FHA loans will also not be affected.

Fannie Mae and Freddie Mac do not originate loans. Instead, they purchase and guarantee them on the secondary market.

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Critics believe the policy undermines many of the efforts the government has taken to support borrowers throughout the pandemic.

In a statement in August, Mortgage Bankers Association President and CEO Bob Broeksmit said the “ill-timed,” “misguided” directive “flies in the face of the administration's recent executive actions.”

“Requiring Fannie Mae and Freddie Mac to charge a 0.5 percent fee on refinance mortgages they purchase will raise interest rates on families trying to make ends meet in these challenging times,” Broeksmit said. “This means the average consumer will be paying $1,400 more than they otherwise would have paid.”

The $1,400 figure is loosely based on the median home price in the second quarter, which is $291,300.

The fee has so far failed to deter borrowers from refinancing, according to data from the Mortgage Bankers Association, which showed that the refinance share of mortgage activity rose for the week ending Nov. 20.

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