iStock illustration

The Federal Housing Finance Agency has delayed a new mortgage refinancing fee scheduled to take effect next week which could have cost Connecticut lenders millions of dollars even as low interest rates have sent consumer demand for refis soaring.

The FHFA said yesterday it had directed Fannie Mae and Freddie Mac to delay the Adverse Market Refinance Fee until Dec. 1. The two government-sponsored enterprises had announced the 0.5 percent fee two weeks ago, citing market and economic uncertainties. The fee was scheduled to take effect on Sept. 1.

Fannie Mae and Freddie Mac will also exempt refinance loans with loan balances below $125,000, the FHFA said in a statement. Nearly half of these loans are for lower income borrowers at or below 80 percent of area median income, according to the FHFA.

Also exempt from the Dec. 1 fee are the affordable refinance products, Fannie Mae HomeReady and Freddie Mac Home Possible.

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

Throughout the pandemic, the FHFA has allowed Fannie and Freddie to support borrowers, renters and the mortgage market by offering forbearance on multifamily and single-family mortgages, buying loans in forbearance, modifying mortgage terms, protecting tenants living in properties in forbearance, and providing loan processing flexibility.

Pandemic-related expenses, according to the FHFA, are expected to 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.

The FHFA said the GSEs’ Congressional charters require expenses to be recovered via income.

After the fee was announced Aug. 12, a coalition of consumer and lending groups urged the FHFA to withdraw the directive, saying it would harm low- and moderate-income homeowners as well as the economy.

Bob Broeksmit, president and CEO of the Mortgage Bankers Association, said in a statement yesterday that delaying the fee will let lenders close refinancing activity already in their pipelines while honoring rate lock commitments made to borrowers.

“We understand that the pandemic and the associated borrower assistance measures the GSEs have instituted impose significant costs on the GSEs and on mortgage servicers, and we are gratified that the revised guidelines also reflect the need to lessen the impact on borrowers with modest incomes or low loan amounts,” Broeksmit said.

Joseph Pigg, the American Bankers Association senior vice president for mortgage finance, said the FHFA should continue to assess the fee.

“Today’s FHFA decision to delay implementation of the new Adverse Market Refinance Fee from Fannie Mae and Freddie Mac and to limit the scope of homeowners impacted is an important step in the right direction that will help lower-income borrowers in particular,” Pigg said in a statement. “We will continue to urge FHFA to carefully assess whether this fee, even delayed until December, could unnecessarily harm struggling homeowners and the broader economy.”