Understanding the New Refinancing Fee
The new fee, originally set to be implemented on September 1st, 2020, was pushed back to December 1st, 2020, and applies to refinance home loans that close on or after 12-1-20.
Why the Fee Was Implemented
Despite objections from members of Congress, the National Association of Realtors (NAR), housing coalitions, and others in the U.S., the fee was implemented on December 1st, 2020.
The new fee is implemented to recoup projected losses occurring because of the Coronavirus pandemic. According to the FHFA, Fannie Mae and Freddie Mac are projected to sustain losses of not less than $6 billion. The broken-down projected losses are $4 billion due to forbearance, $1 billion in foreclosure moratorium losses, and $1 billion in servicer compensation plus other forbearance expenses.
The fee of 0.5% on mortgage refinancing is intended to help recover some of the expected losses. It may or may not be a temporary fee revoked in the future, but the FHFA has not explicitly stated this.
Who Is Subject to the Refinancing Fee, and Who Is Exempt?
This refinancing fee is charged on refinance home loans that meet certain conditions, namely:
- Principal balance of $125,000 or more.
- Loans backed by Fannie Mae or Freddie Mac.
Either Freddie Mae or Fannie Mac backs most home mortgages within the U.S. (more than 60%), which means that most homeowners looking to refinance may fit into the basket of applications subject to the fee.
Exempt Refinance Home Loans
Refinance home mortgages that are exempt from the new refinancing fee include the following:
- The remaining principal balance of the loan is below $125,000.
- The loan is issued through the FHA, USDA, or VA.
- Fannie Mae or Freddie Mac does not back the loan.
Most homeowners have mortgages that Fannie Mae or Freddie Mac backs. Notable exceptions are jumbo home loans used to purchase homes whose prices exceed limitations in the area and homeowners who received a mortgage through a specific government agency such as the FHA, USDA, or VA.
Who Pays the New Fannie Mae or Freddie Mac Refinancing Fee?
The lender pays the fee when selling a refinance home loan to Fannie Mae or Freddie Mac; however, lenders pass the fee on to borrowers in various ways.
Lenders may choose to increase prices to borrowers refinancing a home loan to cover some or all of the cost of the fee. Some borrowers may also have the option to pay the fee as a one-time payment in the upfront refinancing costs.
How the New Fee Will Affect Consumers
Because of how the fee is implemented, the impact may be minimal for most refinancing consumers. Research suggests that even with the adjusted fee structure, over 95% of consumers applying for a refinance will still receive a net benefit from refinancing their home loan.
Marimark Mortgage is based in Tampa, Florida, and serves the mortgage needs of homebuyers, homeowners, and investors in Florida, Virginia, and Pennsylvania.
We specialize in conventional home mortgages, FHA, VA, and USDA mortgage options, refinance loans, and reverse mortgages. We’ve worked extensively with cash-out refinancing and help clients to lower their monthly mortgage payments.