Refinance soon to avoid the FHFA adverse market refinance fee

FHFA fee starts on December 1, but rates will go up before that

Starting on December 1, a new “Adverse Market Refinance Fee” will be imposed on most conventional refinances.

But homeowners won’t pay the new fee at closing.

Instead, lenders will cover it by raising refinance rates — likely by as much as 0.125% to 0.25% on average.

To avoid higher rates, you’ll want to refinance before the fee takes effect.

But there’s a catch: to avoid FHFA’s fee, your refinance loan needs to be closed and delivered to Fannie Mae or Freddie Mac before December 1.

Homeowners who want the lowest-possible refinance rate should apply 2-3 months before December 1 — which is pretty much right now.

Find and a low refinance rate now (Feb 9th, 2021)

What is the Adverse Market Refinance Fee?

On August 12, Fannie Mae and Freddie Mac announced they would assess a new fee on all conventional refinance loans.

The fee is equal to 0.5% of the loan amount.

That means if you had a $200,000 refinance, the new fee would amount to an additional cost of $1,000.

Refinances take a long time to close and deliver, so a September 1 start date meant the fee was already being added to refinances in process.

Originally, the fee was meant to start on September first — meaning it would have applied to all loans not yet delivered to Fannie or Freddie by that date.

But because refinances take a long time to close and deliver, the fee effectively started being added to loans that were already in process prior to September 1.

However, Fannie and Freddie have since changed the rules (and delayed the start date for the fee) in response to a strong industry backlash against it.

Changes to the FHFA refinance fee

On August 25th, FHFA announced two changes to the new refinance fee.

  • The start date moved from September 1 to December 1
  • The new charge will not apply to loan amounts below $125,000, or to HomeReady and Home Possible loans

This is good news for borrowers. It means rates may stay a little lower, a little longer.

It also means that borrowers who were already in the process of refinancing might not see their rates go up as a result of the fee.

In fact, loans currently in the pipeline might have their loan costs re-adjusted in borrowers’ favor, notes Matthew Graham of Mortgage News Daily.

But each lender will handle its own loans differently, so make sure you talk to your mortgage company if you were in the process of refinancing.

Also, note that loans must be delivered to Fannie or Freddie before December 1 to avoid the fee.

That means the refinance will have to close much earlier (in October or early November), so time your refinance accordingly.

Find and lock a low refinance rate (Feb 9th, 2021)

The new fee could push refinance rates up by 0.125% or more

When the new fee does go into effect, borrowers won’t pay it directly.

Instead, it’s likely to be charged to borrowers in the form of higher rates.

“The fee is 50bps [0.50%] in terms of PRICE, and that equates to roughly 0.125% in terms of interest rate,” says Graham.

Though others have estimated that refinance rates could rise as much as 0.375% on average when the fee goes into effect.

Either way, that’s a significant difference in refinance rates for borrowers.

For those who planned to refinance in the near future, it makes sense to get the ball rolling as soon as possible.

The earlier you start your refinance, the better your odds of closing and having the loan delivered to Fannie Mae or Freddie Mac before the fee once again goes into effect.

Find a low refinance rate today (Feb 9th, 2021)

Will all refinances be affected by the new fee?

The Adverse Market Refinance Fee will only apply to refinance loans sold to Fannie Mae and Freddie Mac.

In other words, it applies to ‘conventional’ refinance loans.

But other types of mortgages could be affected indirectly.

In fact, the initial announcement set off higher rates for both purchase and refinancing loans, including some not intended for sale to Fannie Mae and Freddie Mac.

Those who had not locked in rates suddenly faced higher interest costs.

So in the coming months, it seems safe to assume that conventional refinances won’t be the only type affected by rising rates.

No refinance fee on loans under $125,000

One piece of good news from Fannie and Freddie’s most recent announcement is that the refinance fee won’t be charged on loans under $125,000.

Note, that’s based on the loan balance — not the home’s value.

So if your home is worth significantly more than $125,000, but you’ve paid down a lot of the balance, you might end up refinancing less than $125K and the fee won’t affect you.

In addition, the fee won’t be charged to those refinancing a Freddie Mac Home Possible loan or Fannie Mae HomeReady loan.

Why was a new fee developed?

We have faced the COVID-19 economy for months. Some 55 million people have filed for unemployment, and lenders have had to adjust many of their policies to account for the added uncertainty.

But did something new happen to justify this extra fee?

According to Freddie Mac, the new fee was necessary “as a result of risk management and loss forecasting precipitated by COVID-19 related economic and market uncertainty.”

Fannie Mae explained that it was adding the fee “in light of market and economic uncertainty resulting in higher risk and costs.”

But on August 25th, a different answer emerged.

According to the Federal Housing Finance Agency (FHFA) — the regulator that runs Fannie Mae and Freddie Mac — the new money was “necessary to cover projected COVID-19 losses of at least $6 billion at the Enterprises.”

“Specifically,” says FHFA, “the actions taken by the Enterprises during the pandemic to protect renters and borrowers are conservatively projected to cost the Enterprises at least $6 billion and could be higher depending on the path of the economic recovery.”

This refers to relief packages passed during COVID-19, which allowed borrowers to skip mortgage payments without penalty and prevented lenders from foreclosing on any delinquent loans.

But this amount is a fraction of the $109.5 billion in profits Fannie and Freddie have added to government coffers, even after paying back bailout funds they received during the 2008 housing crisis, according to ProPublica.

Using a small percentage of past years’ profits to help homeowners through a worldwide pandemic seems like a good idea to us, anyway.

Will Congress stop the new fee before it goes into effect?

The Adverse Market Refinance fee is now set to start after the November election.

So, could the results of the election impact whether or not the fee actually goes into effect?

That’s not certain. Both Congresswoman Maxine Waters (D-CA), Chairwoman of the House Committee on Financial Services, and Congressman Wm. Lacy Clay (D-MO), Chair of the Subcommittee on Housing, Community Development and Insurance, oppose the new charge.

If opposition to the fee is strong enough, there could potentially be an investigation into the fee and an attempt to stop it. But there’s no guarantee this will happen.

What to do if you want to refinance

Rates are still sitting near record lows — below 3% in many cases. This is basically unheard of in the mortgage world.

Rates are likely to go up as the new refinance fee start date nears. But that’s just one of the many, many factors that can impact mortgage and refinance rates.

If the economy starts to see a real recovery any time soon, rates could start going up regardless of what happens with the refinance fee. On the flip side, they’re not likely to go much lower than they are now.

So for borrowers hoping to refinance at record-low rates, it makes sense to get started sooner rather than later.

Verify your new rate (Feb 9th, 2021)

Source: themortgagereports.com

Don’t Freak Out About the Recent Mortgage Rate ‘Spike’

Posted on January 15th, 2021

Queue the panic. Mortgage rates have officially spiked and the media is all over it.

Yep, the average rate on a 30-year fixed mortgage increased from 2.65% to 2.79% this week, per Freddie Mac’s weekly survey.

Freddie Mac Chief Economist Sam Khater noted in the weekly news release that mortgage rates have been under pressure as Treasury yields have risen.

But he did stress that “while mortgage rates are expected to increase modestly in 2021, they will remain inarguably low.”

So he’s not panicking, even though the Washington Post and other news outlets are leading with articles about “mortgage rates spiking.”

When it comes down to it, a 14-basis point move isn’t what I’d refer to as a “spike,” but yes, mortgage rates are higher than they were last week.

But they are still well below the 3.65% average seen at this time a year ago.

Why Have Mortgage Rates Increased Lately?

rates

  • 30-year fixed mortgage rates have fallen to and hovered close to record lows for months
  • It’s inevitable to see some upward pressure after such a long period of record-breaking movement
  • One driver could be the bond selloff, which lower prices and increases yields
  • This might relate to the Democrats winning the Senate and increasing stimulus spending

As noted, mortgage rates are no longer at record lows, and are in fact closer to 3% than 2%. So should we all freak out?

I’m going to go with no. While the media is using the word “spike” in their articles, perhaps to make its relatively boring weekly report a little more interesting, things aren’t that bad.

Remember, mortgage rates are only marginally higher, and probably not high enough to change anyone’s position on buying a home or refinancing their mortgage.

Sure, there’s a chance someone’s monthly mortgage payment now exceeds the max DTI allowed for the loan, but if you were cutting it that close, you’re probably buying too much home.

As to what’s causing the recent upward reversal, mortgage rate watcher Matthew Graham seems to think it relates to the bond sell-off as a result of the Democrats taking over the Senate.

Simply put, the government issues Treasuries to fund additional COVID-related stimulus, which while good for the economy and struggling households, increases bond supply.

The result is lower bond prices, which forces the accompanying yields (or interest rates) higher.

And because Treasuries correlate with long-term mortgage rates like the 30-year fixed, borrowers will pay more to finance their homes.

Is This the End of Low Mortgage Rates Forever?

  • Let us remember that mortgage rates started off 2021 at all-time record lows
  • So it’s not surprising for them to rise off those levels if there’s any pressure whatsoever
  • I fully expect mortgage rates to hit new lows at some point this year
  • But you’re always going to see ebbs and flows over the course of 365 days

While it’s easy to let your fears and emotions get the best of you, perhaps we shouldn’t call an end to the low-rate party just yet.

Ultimately, mortgage rates ebb and flow, similar to how stocks go up and down from day to day, or week to week.

Yes, it’s easy to get caught up in the psychology of it all and panic, but I just don’t believe we’ve seen the end of the low rates.

Additionally, there may even be more record lows in store for 2021.

Remember, the first week of 2021 resulted in new all-time lows for both the 30-year fixed and 15-year fixed, so it’s kind of far-fetched to sound the alarm.

This isn’t to say we don’t experience a period of relatively higher rates, it’s just that it could be short-lived.

Remember, the presidential inauguration is next week and there are thousands of National Guard protecting the Mall in Wasington D.C and holed up in the Capitol Building.

If that gives you confidence that good times are ahead, well, I don’t know what to tell you.

Not trying to be an alarmist, but there’s just too much uncertainty in the air for interest rates to flourish.

In short, bad news tends to lower rates, while good news increases them. I don’t see much good news, even with all that proposed government spending taken into account.

A month ago, the Federal Reserve said it would be keep its short-term interest rate near zero for the foreseeable future as the economy attempts to recover from the COVID-19 pandemic.

They also indicated that they’d continue to buy Treasuries and mortgage-backed securities (MBS) at the current pace until “substantial progress” is seen in the economy.

Call me a pessimist, but I don’t see anything positive happening with the economy this year, or even next year.

I think we’ve all been ignoring the elephant in the room while watching the stock market reach new all-time highs. At some point, reality will hit.

Ultimately, as long as they’re continuing to buy the mortgages this month and next, lenders will continue to make them at low, low rates.

Time will tell if rates will need to rise on long-term fixed mortgages as the Fed eventually exits the marketplace.

Is It Best to Lock Now or Wait?

  • Times like this exemplify the importance of locking in your mortgage rate
  • You are typically given the choice to lock or float your interest rate once you apply for a home loan
  • If you like what you see, lock it in and don’t give it another thought
  • If mortgage rates shoot up quickly, it could be wise to float and wait for things to calm down

My guess is fixed-rate mortgages will settle down and begin making their way back to lows seen earlier this month.

Of course, mortgage lenders are always quick to raise rates, and a lot more patient when it comes to lowering them (at our expense).

You can’t blame them though – they don’t want to get caught out if volatile rates change direction and they’re on the wrong end of that.

Times like these really exemplify the importance of locking in your mortgage rate. No one cares or complains until rates increase.

If you’re happy with your quoted rate, lock it in and forget about it.

If you’ve got some time before funding, maybe float a bit and wait for some improvement.

After all, the more time you have, the more chances you’ve got for rates to move lower.

And you can always lean on your loan officer or mortgage broker if you’re not sure what to do. Most of the experienced ones keep a keen eye on rates.

In summary, you don’t need to panic, but you should be aware of the fluid situation if you’re looking to refinance or buy a home in 2021.

It might also be a good time to consider how long you plan to stay in your home as well.

That could dictate your mortgage decision and whether or not to pay mortgage points for an even lower rate.

Source: thetruthaboutmortgage.com

If a Mortgage Lender Reaches Out to You, Reach Out to Other Lenders

A lot of homeowners are looking to refinance their mortgages at the moment. That’s abundantly clear based on the record volume of refis expected this year, per the MBA. And while mortgage rates are in record low territory, thus making the decision to refinance an easy one for most, it still pays to shop around. [&hellip

The post If a Mortgage Lender Reaches Out to You, Reach Out to Other Lenders first appeared on The Truth About Mortgage.

Source: thetruthaboutmortgage.com

What Is a Streamline Refinance?

Mortgage Q&A: “What is a streamline refinance?” While qualifying for a mortgage refinance is generally a lot harder than it has been in the past (now that lenders actually care how your home loan performs), there are less cumbersome options available. In fact, many lenders offer “streamlined” alternatives to existing homeowners to lower costs and [&hellip

The post What Is a Streamline Refinance? first appeared on The Truth About Mortgage.

Source: thetruthaboutmortgage.com

Does a Refinance Require an Appraisal?

Mortgage Q&A: “Does a refinance require an appraisal?” A reader recently asked if they needed an appraisal to refinance their existing mortgage, knowing they can often add weeks to the loan process. As with anything in the mortgage realm, the answer is it depends. Mainly, it depends on the type of loan you plan to [&hellip

The post Does a Refinance Require an Appraisal? first appeared on The Truth About Mortgage.

Source: thetruthaboutmortgage.com

Mortgage Rates vs. Fed Announcements

File this one under “no correlation,” despite a flood of news articles claiming the Fed’s rate cut directly impacts mortgage rates. Today, the Fed cut the federal funds rate by half a percentage point to a range of 1-1.25% due to the uncertainty surrounding the coronavirus, this despite a strong U.S. economy. That sent mortgage [&hellip

The post Mortgage Rates vs. Fed Announcements first appeared on The Truth About Mortgage.

Source: thetruthaboutmortgage.com

An Alternative to Paying Mortgage Points

If and when you take out a mortgage, you’ll be faced with an important choice. To pay or not pay mortgage points. In short, those who pay points should hypothetically secure a lower interest rate than those who do not pay points, all else being equal. That’s because mortgage points, at least the ones that [&hellip

The post An Alternative to Paying Mortgage Points first appeared on The Truth About Mortgage.

Source: thetruthaboutmortgage.com