Homeowners looking to refinance their mortgage are going to be in for a pricier ride. And mortgage and housing professionals, who’ve benefited from record low rates to do brisk business, are miffed.
Freddie Mac and Fannie Mae said Wednesday that they will charge an additional 0.50 percent, or 50 basis points, fee to lenders on refinance loans. That means the average consumer looking to refinance a home will soon be paying $1,400 more than they would previously, according to the Mortgage Bankers Association.
Fannie and Freddie cited Covid-related losses from the coronavirus and economic uncertainty to justify the fee hike, which kicks in in September. The government-sponsored entities, which are under the oversight of the Federal Finance Housing Agency (FHFA), do not originate mortgages, but instead buy loans and repackage them through securities.
The move was a shock to the mortgage and housing industry who were seeing a huge uptick in refinancings due to historically low mortgage rates. The 30-year fixed-rate mortgage averaged 2.96 percent for the week ending Aug. 13, according to Freddie Mac.
“Tonight’s announcement by the GSEs flies in the face of the Administration’s recent executive actions urging federal agencies to take all measures within their authorities to support struggling homeowners,” Bob Broeksmit, CEO of the Mortgage Bankers Association, said in a statement on Wednesday.
Industry insiders say the FHFA may have another motivation to raise these fees.
“It’s a money grab here,” said Greg McBride, chief financial analyst at Bankrate. “The government sponsored enterprises are trying to get their hands in the consumers’ pockets.”
Some say the FHFA could be looking to the success of mortgage companies like Rocket Companies, the parent of Quicken Loans, and looking to benefit from the flurry of refinancings. Rocket Companies recently had an Initial Public Offering where it priced its shares at $18 a piece for 100 million shares, allowing the company to raise up to $1.8 billion.
The fee increase will impact both homeowners who are seeking to get a refinance and those that have already requested to refinance, but have yet to lock in their rate. The FHFA did not immediately return a request to comment.
Some lenders, however, don’t seem too concerned about the move, considering that mortgage rates are still at record lows. Banks have relied on refinancing during a time when other lines of business such as commercial real estate lending are being hurt by Covid.
“There will still be demand, just not at a spike like in the last 60 days,” said David Druey, who heads the Florida region for Centennial Bank. “We don’t anticipate any steep drops in the number of requests until mortgage rates climb by at least half a point.”
The timing of the fee hike has puzzled some industry insiders, given that the Federal Reserve is buying $40 billion of mortgage backed securities every month. The Fed’s asset purchases are designed to boost liquidity into the marketplace and encourage lenders to keep making loans.
“Housing has been a big part of the Fed’s toolkit. They are desperately hoping that they can then help the broader economy,” said Chris Whalen, an investment banker who runs Whalen Global Advisors. “This is totally contrary to what they need to be doing.”
The fee increases also come at a time when the FHFA is seeking to return Fannie and Freddie back to privatization after scoring a $190 billion bailout during the housing crisis. The agency could be seeking to increase Fannie and Freddie’s capital levels to bolster its financial position.
In its most recent quarter, Fannie and Freddie combined booked $4.3 billion in profits, earnings statements show.
Whalen adds that by making this move, FHFA head Mark Calabria, who was formerly a director at the Cato Institute, is going to face some heat.
“He has picked a fight with the entire housing industry,” Whalen said. “And everyone is going to come after him.”