Homeowners who are refinancing their mortgages could save money with the elimination of an “adverse market refinance fee” for government-backed loans starting Aug. 1.
In December, the Federal Housing Finance Agency (FHFA) levied a 0.5% fee on those refinancing mortgages backed by Fannie Mae or Freddie Mac if the loans were for more than $125,000. The fee was intended to help Fannie and Freddie cover what they estimated could be $6 billion in losses stemming from pandemic-related homeowner relief. The government earlier had placed a moratorium on foreclosures on federally backed mortgages and offered most homeowners the option to suspend their mortgage payments.
Now, though, FHFA said the success of its policies to reduce the impact of the pandemic is allowing it to eliminate the fee, which added $1,400 to an average loan of $280,000 over 30 years—or $6 a month. FHFA said the fee will end on Aug. 1, and it expects lenders that were charging borrowers the fee will pass the savings back to them.
FHFA said most borrowers from Freddie Mac and Fannie Mae have successfully exited COVID-19 forbearance. In April, roughly 2% of single-family mortgages guaranteed by the federal agencies remained in forbearance, down from a high of about 5% in May 2020.
“The elimination of this fee will improve the affordability and availability of credit for borrowers, and ultimately help those seeking to refinance into lower rate loans and improve their financial condition as the country continues to recover from the COVID-19 pandemic,” the American Bankers Association said in a statement on Friday.
The association and a number of state banking associations had lobbied to ax the fee since last year, saying in a letter to the FHFA in August the fee would harm consumers by raising their lending costs and “perhaps threatening their ability to qualify for advantageous loans.”
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