From the desk of Rose Oswald Poels, President and CEO, Wisconsin Bankers Association
Like many of you, I was surprised and disturbed to learn Fannie Mae and Freddie Mac are imposing a new fee on mortgage refinance loans. The “adverse market refinance fee” is an onerous 50 basis points and applies to no cash-out and cash-out refinance mortgages with delivery or settlement dates on or after Sept. 1, 2020.
The Freddie Mac and Fannie Mae statements indicate the fee is an attempt to mitigate forecasted losses due to the COVID-19 pandemic and “related economic and market uncertainty.” Yet, since it is being applied universally across all mortgage refinances as opposed to a more tailored risk-weighted approach, the fee seems more like an attempt to boost the GSEs’ financial condition.
In reality, the fee shifts the burden to consumers at a time when the economy is fragile and unemployment is high. The Federal Reserve drastically reduced interest rates in an attempt to lessen the economic fallout of the pandemic. The resulting surge in refinance requests meant consumers were attempting to take advantage of those efforts and keep money in their pockets each month by lowering their mortgage payments. The imposition of this fee runs counter to and undermines what the Fed and Congress have been trying to do. Based on the average GSE loan size, this fee amounts to an additional $1,400 for the typical borrower. It will particularly hurt low-to-moderate income individuals.
For banks, the fee presents different challenges depending on whether the mortgage application had the rate locked or not. If the customer locked in the rate, the bank is unable to pass on the fee. For those loans without the rate locked in, banks had a short three-day window (starting the day the fee was announced) to provide borrowers with a revised Loan Estimate. With pipelines already flooded, many banks were unable to satisfy this compliance requirement.
In addition, banks face an accounting issue. Under FASB rules, banks will have accounting for July income in July, and will now need to reverse some of that for August for those loans where the bank did not actually receive the July reported income as a consequence of the bank “eating” the new fee rather than passing it on to their customers.
WBA is working closely with the national trade groups, regulators, our Congressional delegation, and the GSEs to reverse the imposition of this fee as quickly as possible.
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