Federal agency to delay mortgage refi fee

After intense criticism about a new fee on homeowners who refinance their mortgages, the Federal Housing Finance Agency said it would delay the move for three months. The 0.5% fee on refinances now begins Dec. 1 rather than Sept. 1, the agency said recently.

The new fee will be imposed on loans that are resold to Fannie Mae and Freddie Mac, the mortgage giants that buy about two-thirds of all U.S. mortgages. In addition to delaying the 0.5% charge, the FHFA said Fannie and Freddie would exempt loans of less than $125,000 from the fee because many of mortgages of that size are held by moderate-income borrowers.

A number of trade groups for the housing industry, including the National Association of Realtors and the Mortgage Bankers Association, had objected to the fee. Greg McBride, CFA, Bankrate chief financial analyst, had called on the regulatory agency to reverse the fee entirely.

“While not as good as repealing it altogether, this is certainly better than the caper they pulled when they initially announced it without any advance notice,” said McBride.

The Mortgage Bankers Association also welcomed the compromise.

“Extending the effective date will permit lenders to close refinance loans that are in their pipelines and honor the rate lock commitments they made to their borrowers, ensuring that economic relief in the form of record low interest rates will continue to flow to consumers,” the group said in a statement.

Fannie and Freddie titled the new charge an “adverse market refinance fee,” indicating that the government-backed companies were taking a hit from the coronavirus pandemic.

On Tuesday, the FHFA said Fannie and Freddie will lose $6 billion from this recession, including $4 billion in projected defaults.

“The fee is necessary to cover projected COVID-19 losses of at least $6 billion at the enterprises,” the agency said in a statement. “Specifically, 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.”