If you’re looking to refinance your home during the pandemic, it’ll soon cost you more.
Fannie Mae and Freddie Mac announced a new fee of 0.5% to protect themselves from losses on their refinanced mortgages given ow interest rates.
The change, beginning on September 1, adds 0.5% of the loan amount to the consumer’s cost. Given record-low interest rates, mortgage refinancings have been surging since the start of the economic crisis caused by the coronavirus pandemic.
The move met with strong criticism from lenders, who consider it another tax on their business, says Greg McBride, chief financial analyst at Bankrate.com.
Fannie Mae and Freddie Mac do not lend to homeowners. What they do is buy mortgages from lenders and package them into securities that are then sold to investors, similar to a bond. “The irony is striking – the Federal Reserve is effectively printing money to buy government-guaranteed, mortgage-backed securities in order to keep markets functioning, drive down mortgage rates, facilitate refinancing and put monthly savings into consumers’ pockets. And now, (the) Federal Housing Finance Authority wants to grab that savings from the consumer and put it into Fannie and Freddie’s pockets,” McBride says.
The refinance fee is not necessarily meant to discourage homeowners from opting for that route, he adds, but it might have that effect.
On average, the new fee would cost lenders $1,456 – on a loan of $291,300, the median home price in the second quarter, a cost that could be transfered to consumers in the form of higher interest rates come September. “As if there aren’t enough fees involved in refinancing. As if the process doesn’t contain enough unwelcome surprises for the borrower, now you have this,” McBride added.
But the fees would bolster the finances of Fannie Mae and Freddie Mac, helping them potentially come out from government conservatorship.