In a combined letter on Thursday, Fannie Mae CEO Hugh Frater and Freddie Mac CEO David Brickman addressed industry criticisms following the GSEs’ announcement last week of an additional 50 basis point fee on refinances starting Sept. 1.
After the announcement, various companies including the Mortgage Bankers Association, National Association of Realtors, Community Home Lenders Association, National Association of Home Builders and many others called for the withdrawal of the fee, citing it as “untimely” in an age of economic distress. On Aug. 14, the National Association of Mortgage Brokers received more than 10,000 supporters behind its campaign to reverse the GSE fee in just 24 hours after the campaign’s launch.
“Contrary to much of the criticism we have received since making this announcement, this will generally not cause mortgage payments to ‘go up.’” the letter states. “The fee applies only to refinancing borrowers, who almost always use a refinancing to lower their monthly rate,” the letter states.
The CEOs also pointed out that the .5% guarantee fee is a one-time charge rather than a .5% increase on the annual mortgage interest rate.
“Homeowners generally refinance when the interest rate available today is lower than the rate they signed up for when they got their loan. The difference must be big enough that, even after paying the lender’s transaction fees, borrowers save money on their interest payments by getting a new mortgage at the new, lower rate,” the CEOs said.
Following the initial fee announcement, some asserted the fee will cost lenders or borrowers between $1,400 -$1,500 based on the median home price in the second quarter. In their letter, the CEOs called the loan estimate a “misinterpretation” of how the cost would be applied. The GSEs estimate the fee would result in a reduction in savings of about $15 per month – resulting in a savings of $118 per month to homeowners compared to homeowners previously saving $133 on their monthly payments.
Given the current market conditions, the CEOs said some lenders may choose to absorb the new fee and keep rates unchanged while some may pass on a portion of the costs to customers. Regardless of lenders choosing to pass costs to customers, the CEOs said refinancing homeowners will still be able to save money by taking advantage of the historically low interest rates.
Brickman and Frater made references to the policies and programs they have put in place to provide critical support to homeowners and renters during the COVID-19 period, including forbearance programs, loan modification options, moratoriums and single-family foreclosure and eviction prevention actions.
“This is just a fraction of the actions we have taken in coordination with FHFA to support homeowners and renters. We are proud of this effort. But it has not been costless. Nor is it complete,” the CEOs said. “While the re-financing market remains strong, there will be delinquencies and defaults that hit companies because of COVID-19. This modest fee will help us continue helping those who are really hurting during the pandemic.”