Published on October 21, 2021
Written by The Servion Group
Instituted in December of 2020 (and as we wrote about then), the 50 basis point adverse market refinance fee was imposed on lenders when refinancing mortgages over $125,000. The fee was heavily criticized because while the fee was charged to lenders, the cost was typically passed along to consumers in the form of higher closing costs or interest rates.
FHFA ended the adverse market fee on August 1, 2021, just eight months after it began.
In its announcement, FHFA said, “The fee was designed to cover losses projected as a result of the COVID-19 pandemic. The success of FHFA and Fannie Mae and Freddie Mac COVID-19 policies reduced the impact of the pandemic and were effective enough to warrant an early conclusion of the Adverse Market Refinance Fee.” The agency further noted that its “expectation is that those lenders who were charging borrowers the fee will pass the cost savings back to borrowers.”
Diana Olick of CNBC, who regularly covers all things mortgage, noted the industry was supportive of the fee’s elimination. She interviewed Greg McBridge, chief financial analyst for Bankrate.com, who said “The fee had often resulted in an increase of one-eighth of a point in rate, which was enough to siphon $20 per month in potential savings out of the pockets of borrowers with a $300,000 loan.”
Housing Wire also reported that many were happy to see the fee disappear given how well lenders have performed during the pandemic. And, both Fannie Mae and Freddie Mac did extremely well, with Fannie reporting $5 billion in net income during Q1 2021 and Freddie reporting $2.8 billion in earnings.
Clearly with lending at record levels throughout COVID, the main rationale for the fee – namely that it would cover COVID-related losses – disappeared, as has the rate itself.