It's About to Get Cheaper to Refinance Your Mortgage

Refinancing is about to get more affordable.

That’s because the Federal Housing Finance Agency is eliminating its “adverse market fee” — a 0.5% fee charged on all Fannie Mae and Freddie Mac refinances.

The FHFA instituted the fee just eight months ago to offset the losses expected from the COVID-19 pandemic. Though borrowers didn’t pay the fee directly (it was incurred by the lenders who issue the loans), experts say it was passed down to consumers through higher closing costs or higher interest rates. All in all, the Mortgage Bankers Association estimated the fee added about $1,400 to the average refinance.

Back when it was announced, many spoke out about the fee and its repercussions for American families — particularly amid a global pandemic. David H. Stephens, former commissioner for the Federal Housing Administration, even dubbed it “a middle finger to protect billionaire bond investors.”

Now, the FHFA is reversing course, saying it will remove the fee starting August 1. Just how much will eliminating the fee help the average homeowner, though?

According to Melissa Cohn, executive mortgage banker at William Raveis Mortgage, it could mean a drop in interest rates between 0.125 to 0.25 — or the difference between a 3% rate and a 2.75% one. That would reduce the payments on a $300,000, 30-year loan by about $40 a month and save $15,000 in long-term interest costs.

“It’s great news,” Cohn says. “Lenders never absorbed the adverse market fee. They just put it forward and charged it through in terms of higher rates.”

Shashank Shekhar, CEO of Arcus Lending, says some borrowers may see the savings in their closing costs instead.

“If you were paying 1% in closing costs, now you will only pay 0.5%,” Shekhar says. “It’s significant for a lot of borrowers, and with the rates already low, it’s especially great for those who could not benefit from the lower rates earlier this year. This gives them an opportunity to get lower rates plus get a lower cost because of that reduction in fees.”

To be clear, the adverse market fee only applies to refinance loans that are eligible to be sold to Fannie Mae and Freddie Mac. The two government-sponsored enterprises currently purchase about 70% of all mortgage loans.

Homeowners with Fannie- and Freddie-owned loans have other ways to save, too. In May, the GSEs announced two new refinance programs, both designed for lower-income borrowers — or those making 80% or less than the area median.

Dubbed RefiNow (Fannie Mae) and RefiPossible (Freddie Mac), the programs guarantee at least a .50 interest rate cut and a $50 reduction on the borrower’s monthly payment or more.

According to Shekhar, the measures are a part of a larger government effort to help homeowners struggling during the pandemic.

“I think the new administration itself is trying to give more money back to homeowners,” Shekhar says. “That's what they did with programs like RefiNow and RefiPossible for lower-income borrowers. And now, by removing the adverse market fees for the rest of the borrowers. It seems to be consistent with their theme of helping people save more money.”

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