ALTA Helps Convince FHFA to Delay Refinance Fee

August 25, 2020

Following input from ALTA and a broad coalition of associations, the Federal Housing Finance Agency (FHFA) on Aug. 25 directed Fannie Mae and Freddie Mac to delay implementation of an adverse market refinance fee until Dec. 1, 2020.

The 50 basis-point fee on most refinance mortgages was previously scheduled to take effect Sept. 1, 2020.

“ALTA thanks the FHFA for listening to concerns from a broad coalition of organizations—ranging from consumer groups to policymakers—and delaying implementation of the Adverse Market Refinance Fee,” said Diane Tomb, ALTA’s chief executive officer. “Doing so ensures homeowners can continue to take advantage of historic low mortgage rates and lower their monthly payments during the pandemic. ALTA will continue to work with FHA, Fannie Mae and Freddie Mac during these challenging times to find a balance between managing risk while giving borrowers access to affordable refinance options.”

In a letter to the FHFA, ALTA and the broad coalition said the additional fee would increase the cost to refinance by about $1,400. The groups said the announcement conflicted with recent executive actions urging federal agencies to take all measures within their authority to support struggling homeowners. ALTA and the other trade groups said that despite the fragility of the national economic recovery, the mortgage market has been able to withstand many of the most severe effects of the COVID-19 pandemic.

“The recent refinance activity has not only helped homeowners lower their monthly payments, but it is also reducing risk to the GSEs and taxpayers,” the groups wrote. “At a time when the Federal Reserve is purchasing $40 billion in agency mortgage-backed securities per month to help reduce the cost of buying or refinancing a home and stimulate the broader economy, this action by the GSEs raises those costs, contradicting and undermining Fed policy.

“The pricing increase is particularly harmful for our nation’s low- and moderate-income homeowners and for the emerging, but unsteady improvements to the national economy. The undersigned organizations strongly urge the Federal Housing Finance Agency, which had to approve this policy, to withdraw this ill-timed, misguided directive,” the letter continued.

FHFA is also announcing that the government sponsored entities (GSEs) will exempt refinance loans with loan balances below $125,000, nearly half of which are comprised of lower income borrowers at or below 80 percent of area median income. Affordable refinance products, Home Ready and Home Possible, are also exempt.

According to FHFA, the fee is necessary to cover projected COVID-19 losses of at least $6 billion at the GSEs. Specifically, the actions taken by Fannie and Freddie during the pandemic to protect renters and borrowers are conservatively projected to cost the GSEs at least $6 billion and could be higher depending on the path of the economic recovery.

Those expenses are expected to at least include:

  • $4 billion in loan losses due to projected forbearance defaults
  • $1 billion in foreclosure moratorium losses
  • $1 billion in servicer compensation and other forbearance expenses

FHFA has a statutory responsibility to ensure safety and soundness at the Enterprises through prudential regulation. The GSEs’ Congressional Charters require expenses to be recovered via income, allowing the Fannie and Freddie to continue helping those most in need during the pandemic.  

Contact ALTA at 202-296-3671 or [email protected].