Refinancing is About to Become a lot Less Profitable

August 24, 2020 at 9:26 am Leave a comment

The mortgage industry has been in an uproar since Fannie Mae and Freddie Mac announced on August 12th that they would be imposing a 50 basis point fee on most refinanced mortgages sold to them starting September 1, 2020.  It’s not just what they did, but how they did it that has mortgage lenders so annoyed.

Crucially, this new fee will apply to mortgages with settlement dates on or after September 1, 2020.  Since most mortgage loans are locked in between 45 and 60 days prior to closing, mortgage lenders will not be able to pass the increased costs for refinancing onto borrowers.  The American Banker estimates that this will cost the mortgage industry hundreds of millions of dollars over the next two months.

Refinances have skyrocketed.  Thanks to almost non-existent interest rates there have been over 1.5 million refinances in the second quarter of 2020.  The Federal Housing Finance Agency (FHFA) could have directed the ostensibly bankrupt quasi-governmental behemoths it oversees not to impose this sharp increase on loan applications but it chose not to.

In a combined letter released Thursday, the top executives at the GSEs responded.  They said that

“Contrary to much of the criticism we have received since making this announcement, this will generally not cause mortgage payments to ‘go up’.  The fee applies only to refinancing borrowers, who almost always use a refinancing to lower their monthly rate”

This misses the point.  It doesn’t address why mortgage refinances should be made more expensive or why lenders are not being given time to adjust to these increased costs.

As I mentioned, the GSEs are currently overseen by the FHFA, an agency created in the aftermath of the mortgage meltdown to oversee Fannie and Freddie.  Like the CFPB, the agency has a single director.  Next year the Supreme Court will be hearing a case challenging its constitutionality.  Government decisions like these shouldn’t sanctioned by a single unelected individual.

Entry filed under: Mortgage Lending. Tags: , , , , .

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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