Homeowners hoping to take advantage of low mortgage rates by refinancing are in for sticker shock. Freddie Mac and Fannie Mae are imposing a new “adverse market refinance fee” on all mortgage refinances, which means those homeowners will be paying more at the loan close. On average, this fee adds $1,400 to the cost of refinancing. This could result in some consumers being priced out of their opportunity to lower their monthly mortgage payments according to the Wisconsin Bankers Association.  

“We were surprised that Freddie Mac and Fannie Mae would raise fees at a time when the economy is fragile and unemployment is high,” said Rose Oswald Poels, WBA president and CEO. “This move only hurts consumers at a time when they need all the help they can get.” 

“It’s frustrating because low mortgage rates meant consumers, especially low- and moderate-income homeowners, could improve their financial situations by lowering their monthly mortage payments by refinancing their loan. This fee increase jeopardizes that effort.” 

The Federal Housing Finance Agency (FHFA) announced last week a new loan-level price adjustment fee of 0.5% basis points to be imposed on cash-out and non-cash-out refinance mortgage transactions that Fannie Mae and Freddie Mac purchase. FHFA stated the fee is a result of risk management and loss forecasting by Fannie and Freddie related to economic and market uncertainty as a result of COVID-19 effects. 

The fee is effective for loans purchased or delivered on or after Sept. 1, 2020. Loan-level price adjustment fees are typically part of the loan rate or costs associated with the refinancing that consumers pay. 

The result is increased fees to homeowners and a slowdown of a white-hot refinancing marketing, one of the bright spots in the economy. Why would Freddie and Fannie do this? It’s simple: to increase their own capital levels as a hedge against future risk.