Fannie Mae and Freddie Mac are slashing a mortgage refinancing fee introduced during the pandemic to help lower borrowers’ costs, the Federal Housing Finance Agency said Friday.
Fannie and Freddie charged the lenders a 50 basis point fee for all loans made to the two mortgage giants. The fee to cover the projected losses from the pandemic has been passed on to borrowers.
“The COVID-19 pandemic has exacerbated America’s affordable housing crisis financially. The elimination of the adverse market refinancing fee will help families take advantage of the low interest rate environment to save more money, ”Sandra Thompson, director of the Federal Housing Finance Agency, said in a statement. Her agency is the restorer of Fannie and Freddie.
“Today’s action supports the FHFA’s priority of supporting affordable housing while protecting the safety and soundness of businesses.”
The mortgage industry welcomed the move.
“Santa comes early for homeowners looking to refinance their mortgages,” said Greg McBride, senior financial analyst at Bankrate.com. “The fee had often increased the interest rate by an eighth of a percentage point, enough to siphon off $ 20 in potential savings for borrowers with $ 300,000 a month in credit.”
The fee was introduced when the federal government launched a massive mortgage rescue program at the start of the pandemic. During the worst of the economic downturn, about 5% of Fannie and Freddie’s borrowers were in mortgage forbearance programs. By July 13, that percentage had fallen to 2.1%, according to Black Knight.
A total of 1.86 million borrowers remain in Covid forbearance plans, which is 3.5% of all active mortgages. For FHA / VA the share is 6.2% and for own brand and bank portfolio loans 4.0%.
Mortgage rates have recently fallen and are now near a 5 month low. Applications to Refinancing jumped in the past two weeks, according to the Mortgage Bankers Association, and with those additional savings it is likely to grow even higher.
“We asked the FHFA to repeal this policy and we appreciate their review of the data and responded to our request,” said Bob Broeksmit, the association’s president and CEO. “Since less than 2 percent of GSE loans are tolerated and the continued rise in real estate prices is creating significant equity capital for borrowers, the fee is not required.”