Mortgage refinance applications soar despite added fee

It will cost a little more to refinance a conventional mortgage now that the new Adverse Market Refinance Fee went into effect this month. But the extra charge isn’t expected to push many homeowners away from the closing table, if they notice it at all.

The 0.5% fee that the Federal Housing Finance Agency put into effect on Dec. 1 amounts to about an eighth of a point being added to the interest rate of the loan. And the truth is, it’s already baked into the interest rate most banks offer.

Borrowers will either see the charge in the form of an extra cost at closing or a higher interest rate on the new mortgage. It comes out to an extra $1,000 on a $200,000 refinance, or $1,250 on a $250,000 refinance.

But in most cases, banks will absorb the fee and charge a higher interest rate for the refinance. The difference would amount to an interest rate of 2.58% versus 2.5% for a 30-year mortgage.

The current rate for a 30-year mortgage refinance stood at 2.625% on Thursday, according to San Francisco-based Credible Operations Inc.

“The lender can always raise the interest rate to cover the additional cost,” said Rich Milesky, president of the Penn Suburban Abstract title company in McCandless.

“Bumping the payment up by an eighth of a percentage point is fairly nominal for most banks,” he said. “I don’t know if the new fee will have a dramatic negative effect. If things slow down at all it will be because everyone who wants a refinance has already done it.”

The FHFA was previously scheduled to start requiring Fannie Mae and Freddie Mac to start charging the fee on refinance mortgages they purchase starting Sept. 1. But the rule was delayed for three months.

A news release from the FHFA said the new fee is necessary to cover projected COVID-19 losses to the tune of at least $6 billion due to actions taken by the federal agency during the pandemic to protect renters and borrowers at risk of losing their housing.

The FHFA regulates the federally backed home mortgage companies Fannie Mae and Freddie Mac. The new fee, equal to 0.5% of the loan amount, will be charged to all cash- out and no cash-out refinance loans bought and guaranteed by the two governmentsponsored enterprises on the secondary mortgage market.

Millions of Americans have filed for unemployment during the pandemic, and the fee will balance off some of the higher risks and costs lenders have incurred while adjusting their policies to accommodate coronavirus protections, such as mortgage forbearances and eviction moratoriums.

The new charge won’t apply to loan amounts below $125,000 or to homeowners refinancing a Fannie Mae Home-Ready loan or a Freddie Mac Home Possible loan.

The fee applies only to conventional refinance loans, but other types of mortgages could be affected indirectly by rising rates.

Refinance applications have surged as mortgage rates test new lows, according to the Mortgage Bankers Association in Washington.

The MBA reported this week that the refinance share of mortgage activity increased to 72% of total mortgage applications from 69.5% last week.

Justin Rosenal, vice president of the Pittsburgh region for Union Savings Bank in Richland, said Thursday that the mortgage market is engulfed with refinance applications, and he doesn’t see it slowing down soon.

“This is the first time I’ve seen in 30 years in the business that it’s taking 90 to 100 days to do a refinance because the market is so overwhelmed,” Mr. Rosenal said. “One way to put it is we’re doing 4 million when the market can handle 2 million.”