Just when you thought interest rates couldn't go any lower -- they go lower. The combination of a, the COVID-19 pandemic and historically low interest rates has created ideal conditions for homeowners to in many parts of the US. And thanks to a recent change, refi deals are getting even sweeter.
On Aug. 1, mortgage giants Fannie Mae and Freddie Mac dropped the Adverse Market Refinance Fee for all refinanced mortgages. The refinance fee translated to a charge of 0.5% on refinanced loans, or roughly $500 for every $100,000 borrowed.
Ratesa day after the fee removal -- and they've continued to slide, albeit modestly, ever since.
The government fee was added in December 2020 to allow Fannie and Freddie to recoup some of the losses the government-backed lenders expected to incur during the pandemic. In most cases, lenders passed this fee on to borrowers, which could add thousands of dollars to a refinancing. The move was seen as a way to counterbalance lenders' losses after the placed a on foreclosures and provided homeowners with the option of their mortgage payments.
Though it's not clear that the US economy is on sure footing yet --have worried some economists -- eliminating this fee is good news for homeowners looking to refinance.
From April to July 2020, when the pandemic was ramping up, approximately 5% of Fannie and Freddie borrowers were enrolled inprograms. That has since fallen to 2%, according to FHFA data. The agency said the success of its COVID-19 policies reduced the impact of the pandemic on Fannie and Freddie loans, warranting an early end to the fee so that lenders may pass the savings on to borrowers.
"The COVID-19 pandemic financially exacerbated America's affordable housing crisis. Eliminating the Adverse Market Refinance Fee will help families take advantage of the low-rate environment to save more money," acting Federal Housing Finance Agency Director Sandra L. Thompson said in a press release. The FHFA was created following the 2008 housing crisis, and the agency acts as conservator of Fannie and Freddie mortgages.
Some refinance loans were already exempt from the fee, including homes worth $125,000 or less, homes refinanced through Fannie Mae's Home Ready or Freddie Mac's Home Possible programs, and government-backed mortgages, including, and loans. Jumbo mortgages between $510,400 and $765,000 in some regions were also exempt.
"[The] FHFA should be commended for eliminating this fee," said Mike Fratantoni, chief economist of the Mortgage Bankers Association. "With less than 2% of GSE loans in forbearance and continued home price appreciation resulting in significant borrower equity, there is no need for the fee."
Despitein July, refinances are down 60% since January, according to a Black Knight survey. Analysts are hopeful that the fee elimination will energize the housing market. "The recent decline in mortgage rates, as well as the elimination of the fee, should give homeowners who have yet to refinance and save money the opportunity to do so now," Fratantoni said.