(1) Adverse Market Refinance Fee is 0.50% of refinance loans
(2) Fee is linked to market uncertainty but required to cover projected COVID-19 losses of approximately $6 billion, which resulted from actions taken to protect renters and borrowers during the pandemic
(3) Fee will be activated on all conventional refinance loans on December 1, 2020
(4) If you complete your refinance process before December 1, 2020 or if your refi is below $125,000, it will not affect you.
(5) It is expected that the fee will result in rate increases of at least 0.125%. However, other financial analysts have concluded that interest rates may increase by as much as 0.375%
(6) Consider refinancing sooner to avoid the higher costs
(7) Congressional action could affect this fee so be on the lookout for updates
Historically low interest rates for home mortgages amid the COVID-19 pandemic has created an upsurge of applications for refinances. When refinancing your property, one of the most critical aspects is identifying how to get the most out of your financing options. Staying up to date on changes to regulations is critical. One upcoming change is the creation of a new Adverse Market Refinance Fee, which is something that will soon affect those seeking to refinance. How will this affect you? Get the answers to all your questions here.
(1) What is the Adverse Market Refinance Fee?
Quite simply, the fee is a 0.5% charge of the value of the mortgage on most conventional refinance loans. Thus, a $250,000 refinance would incur an additional charge of $1,250.
(2) Why was the Adverse Market Refinance Fee Created?
COVID-19 has negatively impacted the economy for months now. In the United States, this has resulted in record unemployment. The depressed economic condition creates more risk for lenders.
The fee was initially said to be linked to market uncertainty in the current environment. However, the Federal Housing Finance Agency later stated that the fee was required in order to cover projected COVID-19 losses of approximately $6 billion, which resulted from actions taken to protect renters and borrowers during the pandemic.
(3) When will the fee go into effect?
The fee, which was announced by Fannie Mae and Freddie Mac on August 12, will be assessed on all conventional refinance loans. Initially, it was determined that the fee would begin to be charged on September 1; however, this resulted in a significant amount of public criticism given the lack of sufficient notice. As such, the implementation date was pushed back to December 1, 2020.
(4) Will this fee affect me?
It depends. If you complete your refinance process before December 1, it will not affect you. Additionally, if your refinance is for an amount below $125,000, the fee will not be implemented.
Finally, if you participate in either the HomeReady or Home Possible loan program, the fee will not apply. These exclusions were added when the FHFA Adverse Market Refinance Fee was shifted to a December implementation.
(5) How will the Adverse Market Refinance Fee affect rates?
This is an excellent question. In reality, many lenders are expected not to charge the fee directly, but to rather impose higher rates in order to cover it. This is problematic for the borrower because they will not only pay the higher fee - but also more interest on the fee. It is expected that the fee will result in rate increases of at least 0.125%. However, other financial analysts have concluded that interest rates may increase by as much as 0.375%.
(6) What should I do?
Refinancing is not a process that should be taken lightly. It requires research and due diligence. However, if you have already been considering refinancing and have researched the process, this may be a good time to act on that desire in order to avoid the higher costs. While there are two months until the Adverse Market Refinance Fee goes into effect, the reality is that refinancing is a lengthy process. Acting now will increase the likelihood of completing the process before the fee is imposed.
Having complete information is critical. There are some ways that Congressional action could affect this fee. Specifically, leading lawmakers on the House Committee on Financial Services and Subcommittee on Housing, Community Development, and Insurance oppose this new fee. If opposition grows, it could result in actions to stop the fee; however, this is not guaranteed and could depend on who controls the Senate after the November election as legislation must pass both chambers. Keep in mind, however, that most mortgage refinances take anywhere from 30-45 days to close and it takes banks time to process the loans prior to delivering them to Fannie Mae and Freddie Mac. So you should start the process in the next few weeks to take advantage of the historically low rates before the fee goes into effect on December 1st, 2020. We have several vetted mortgage lenders that you can choose from so please give them a call and discuss all your refinance options.