FHFA Rescinds Covid-19 Refinance Fee

The Federal Housing Finance Agency (FHFA) has announced that Fannie Mae and Freddie Mac will do away with the controversial “Adverse Market Refinance Fee” instituted last year.

The policy, which imposed an extra fee of 50 basis points on most refinance mortgages over $125,000, will be abolished effective Aug. 1. According to a statement from the FHFA, the fee is being terminated early “to allow families to save more money.”

“The fee was designed to cover losses projected as a result of the COVID-19 pandemic,” said the statement. “The success of FHFA and the Enterprises' COVID-19 policies reduced the impact of the pandemic and were effective enough to warrant an early conclusion of the Adverse Market Refinance Fee. FHFA's expectation is that those lenders who were charging borrowers the fee will pass cost savings back to borrowers.”

“The COVID-19 pandemic financially exacerbated America's affordable housing crisis. Eliminating the Adverse Market Refinance Fee will help families take advantage of the low-rate environment to save more money. Today's action furthers FHFA's priority of supporting affordable housing while simultaneously protecting the safety and soundness of the [government-sponsored] enterprises,” added Sandra L. Thompson, acting director of the FHFA.

The adverse market refinance fee was soundly decried by lenders, brokers, bankers and other mortgage industry stakeholders when it was initially announced last August. Bob Broeksmit, president and CEO of the Mortgage Bankers Association (MBA), called the fee “ill-timed” and “misguided” when it was proposed. Dick Lepre, senior loan advisor at RPM Mortgage, called Fannie and Freddie’s risk management reasons for implementing the fee “categorically false,” while Shashak Shekhar, CEO of Arcus Lending, described the fee as “diabolical.” Jeanne Radsick, president of the California Association of Realtors, accused the FHFA of putting its then-goal of recapitalizing Fannie and Freddie for release over the needs of American homebuyers.

Lepre observed that the termination of the fee appears to telegraph some of the new administrations current goals with regard to Fannie and Freddie.

“Friday’s announcement correctly noted that risk to the GSEs was lower because the number of loans in forbearance had dropped, but seems to me to presume that the threat from COVID had ended,” he said.

“Bottom line: Good for borrowers and lenders, but with added and unknown risks to the GSEs at a time when the FHFA director has been replaced. [Former FHFA director] Mark Calabria’s goal was to adequately capitalize the GSE and remove them from Treasury conservatorship. The administration’s actions indicate that they are less interested in severing the GSEs from Treasury.”

Broeksmit lauded the FHFA for finally withdrawing the fee after months of criticism from the lending sphere.

“MBA applauds Acting Director Sandra Thompson’s decision to eliminate the Adverse Market Refinance Fee,” Broeksmit said. “We have called on FHFA to rescind this policy and appreciate that they have reviewed the data and been responsive to our request. With less than 2 percent of GSE loans in forbearance and continued home price appreciation resulting in significant borrower equity, there is no need for the fee.”

“The Community Home Lenders Association (CHLA) strongly commends FHFA Acting Director Sandra Thompson for her action to eliminate the adverse market fee,” concurred CHLA Executive Director Scott Olson. “This action appears to reflect a commitment to access to credit, which is welcomed as we recover from COVID-19.”