FHFA adds, then delays a surprise fee applicable to every homeowner refinancing with a Conventional loan. It appears to be opportunistic leveraging of the 2020 refinance boom into expediting GSE reform.
Refinancing is in Vogue. Maybe more so than ever before. Why? Mortgage rates have hovered over and dipped under all time lows since the COVID pandemic set in. With mortgage lenders helping homeowners refinance into better loans, the head the FHFA (entity overseeing Fannie Mae & Freddie Mac – also known as the GSE’s) wants in on the fun.
Funding GSE (Fannie & Freddie) Reform Via Refi Boom
FHFA head Mark Calabria’s main obsession is moving GSE reform forward. In fact, we knew that the Calabria era brought with it a faster pace of Fannie Mae and Freddie Mac’s catepillar-ing out of the cocoon of convservatorship.
To exit it’s child-parent bond with the FHFA, Fannie and Freddie need money – lots of it! Combine this with Calabria’s focus on “fixing” the GSE’s and ethically cut corners and foggy transparency become pavers along the path.
‘I believe that under the statute I am required to fix [Fannie and Freddie]’Mark Calabria, Director of the FHFA, DS News 05/18/20
Perfect Storm for a GSE Cash Grab
The current COVID/Fed Policy induced refinance boom set the table for a move many called a cash grab. Inherently, “cash grab” implies wrongness. It signals quick sneaky dollar snatching that doesn’t add up to “okay”.
As refinances overflowed mortgage offices, Calabria and the FHFA swiftly forced a surprise cost onto refinance loans. Many argue it came without merit. On August 12, 2020 and out of the clear blue sky a 50 basis point cost added itself to every refinance transaction delivered to the GSE’s on or after September 1, 2020.
Translation – without warning every lender funding a Conventional refinance owed the GSE’s 50 basis points more for each loan. 50 basis points on a $300,000 loan is $1,500. The impossibly proximal deadline initially meant many lenders faced paying the added fee on loans they already closed. It also eventually meant homeowner’s would face that same added cost on new refinances originated after the announcement.
Reason for Refinance Fee in Question
The surprise nature of the 50 basis point attack on refinances alone ruffled mortgage feathers and wrinkled homeowner brows. Calabria’s seemingly smokescreen-like reasoning gassed the flame higher.
Applying a measure of reason to Calabria stating the new refinance fee hedges economic uncertainty for the GSE’s reveals one truth. The head of the FHFA sees the public as lobotomized zombies trampling each other to buy snake oil.
The fee is not a hedge. Besides adding a burdensome cost watering down historical savings at a critical time for refinancing homeowner’s, the fee represents an opportunistic fast forward button for GSE reform. Collecting another 50 basis points on each Conventional refinance ($1500 on a $300,000 loan) Usain Bolts GSE’s toward the reform finish line.
Shoot it straight at a minimum. After all, it just feels better and less slimy for the FHFA to call spades – spades. The new fee serves as a financial booster shot for GSE reform. That seems far more accurate here.
Resistance to Refinance Fee
Mortgage lenders received the new refinance fee news – and moments later the resistance began. Thankfully, industry efforts scored a small win. The new deadline for Conventional refinance loans subject to the new fee moved from a September 1, 2020 to a December 1, 2020 delivery to the GSE’s based deadline. One step forward for lenders and homeowners but short of a win.
Ultimately, the fee’s fate is unknown. Will it be repealed or if it does see the light of day how long it will stay?
By Jeremy House