Image via piqsels.com
Written by Edward Smith
Fannie Mae and Freddie Mac this week announced a new mortgage refinancing fee to hedge against an uncertain housing market.
It caught brokers and lenders by surprise. And some lenders view the fee as a “guise” for another way to make money.
When John Vartanian, president of MAV Mortgage in Clovis, got an email Thursday night about the so-called “Adverse Market Fee” from Fannie Mae, adding half a percentage point to all loans, it caught him by surprise. Loan rates had been stable for so long his initial reaction was to get loans locked in that were waiting to be processed.
“You woke up the next morning and you had this extra hit on your loan,” Vartanian said.
Beginning Sept. 1, any loans delivered to mortgage lending giants Fannie Mae and Freddie Mac would be assessed with a new loan-level price adjustment.
And in a time when banks lowered interest rates in order to help people in a crisis, the added fee runs contrary to what the ultimate goal was, Vartanian said.
“We might have saved someone a hundred dollars that would have really helped,” he said.
The fee essentially breaks down to $1,500 for a loan on a $300,000 property, said Brendan Farrell, branch manager of American Pacific Mortgage in Visalia.
And while that cost is put on lenders, Farrell said it will inevitably get passed onto the borrower, adding an additional 1/8 to 3/8 points to the interest rate, depending on the credit score.
They’re calling it a hedge against a possible wave of foreclosures, Farrell said, but he views it as just another tax, as insignificant as it may be.
“Is it an end of the world cost? No,” Farrell said. “Is it unnecessary? Yes.”
At the same time the government wants borrowers to save money by lowering interest rates, they’re using it as a “back door way for the Fed to collect money,” he said.
Usually, lenders will get announcements that fees such as these are coming down the road, but the announcement of the fee caught Farrell by surprise. He describes it this way — on Monday, a family looking to refinance may have gotten a rate at 2.76%. By Friday, that rate would have gone up to 2.876% — not enough to change a borrower’s mind, Farrell said, but rather, “It’s another way to make money on the back end.”
Loan applications take 15 to 18 days to get to Fannie Mae or Freddie Mac, Vartanian said. So it essentially means that loans filed as early as Friday would be assessed with the new fee.
While intended to cover any uncertainty in people being able to pay their mortgage, Vartanian doesn’t see the fee justified as being a risk-based assessment. People with 5% equity and a 700 credit score will be treated the same as someone with 40% equity and a 850 credit score, he said.
What also worries Vartanian is that when pandemic fears subside, the fees remain.
“When they put loan-level price adjustments in place, they never take it away,” he said.
The move comes as the two mortgage giants have sought to end the conservatorship the U.S. Treasury put them in after becoming a majority stockholder in 2008 at the start of the Great Recession. In order to do that, the two government-sponsored enterprises have to raise the capital to buy themselves back.
Rates are still great, even with the fee, said Vartanian.
“The timing is not that great,” he said. “But we’re still going to be able to get them money.”