FHFA delays implementation of Adverse Market Refinance Fee

Detailed analysis of delay in implementation of adverse market refinance fee.

Murali Tirupati

Cofounder & CEO, Vaultedge

FHFA today announced that it will delay the implementation of the new Adverse Market Refinance Fee to 1st December. This fee was originally scheduled to come into effect from 1st September and would impose a 0.5% fee on Refinances. Which is to say that, if you have a loan outstanding of $300K then you would be incurring an additional cost of $1500 when you refinance that loan. Read our earlier blogpost on this topic here.

FHFA now made some important changes to this directive now:

  • Implementation is delayed till 1st December
  • Refinance loans with loan balances below $125,000 are exempt from this fee

FHFA also explained the rationale for the fee. It estimates additional expenses to the tune of $ 6 Bn to GSEs (FannieMae and FreddieMac) from various measures related to Covid-19. Those expenses are expected to at least include:

  • $4 billion in loan losses due to projected forbearance defaults;
  • $1 billion in foreclosure moratorium losses; and
  • $1 billion in servicer compensation and other forbearance expenses.

FHFA justified that the 0.5% fee is needed to cover some of these costs.

While the updated directive still falls short of what mortgage industry was demanding - which is a complete withdrawal of the directive - this still provides much needed relief to lenders and borrowers. This will give lenders three additional months to honor locks and close out refinance pipelines before the fee takes effect. It will also provide borrowers time to take decisions on their Refinances.

But surely we have not heard the last on this one. Industry still wants this completely rescinded. So watch out this space for more on this.