Updated: Aug 27, 2020
A sudden turnaround from record low interest rates caused a pullback in mortgage refinance demand. The increase was due partially to an increase in lender fees imposed by Fannie Mae and Freddie Mac as they revealed in an overnight surprise that all refinance mortgage loans sold to Fannie Mae and Freddie Mac after Sept. 1 will include a new adverse-market refinance fee of 0.5%.
Fannie and Freddie instituted at 50-basis point price change without warning due to“higher risk and costs” absorbed in the uncertain climate of Covid-19. This from Freddie, who earned $1.8 billion last quarter, and Fannie, who earned $2.5 billion. Is the fee a reasonable thing to do when rates are so low, or a blatant money grab?
Refinances that are locked and can’t be adjusted might be impacted by the September 1st sell date, which means lenders might have to pay the fee. If the deal isn’t locked, the cost likely will be passed on to the consumer.
After the announcement, various companies including the Mortgage Bankers Association, National Association of Realtors, National Association of Home Builders and many others called for the withdrawal of the fee, citing it as “untimely” in an age of economic distress.
In a combined letter on Thursday, Fannie Mae CEO Hugh Frater and Freddie Mac CEO David Brickman addressed industry criticisms following their announcement. “Contrary to much of the criticism we have received since making this announcement, this will generally not cause mortgage payments to go up. The fee applies only to refinancing borrowers, who almost always use a refinancing to lower their monthly rate,” the letter states. “Homeowners generally refinance when the interest rate available today is lower than the rate they signed up for when they got their loan. The difference must be big enough that, even after paying the lender’s transaction fees, borrowers save money on their interest payments by getting a new mortgage at the new, lower rate.”
The new credit fee doesn’t apply to purchase mortgage loans that have seen an influx of new applications this month, ultimately providing support if refinancing continue to decline. Conventional refinance applications fell 11% and government refinance applications fell 6%, which pushed the total refinance index to its lowest weekly level since July. Whether that is due to the GSE change or an increase in mortgage rates is up for debate. Either way, the change with be mutually beneficial for lenders AND realtors.
Rather than a typically busy spring home-buying season, the COVID-19 pandemic pushed the bulk of purchases this year into the summer months leading industry experts to declare that August is officially the new May for homebuying.
Mortgage applications to purchase a home increased just 1% for the week but were a remarkable 27% higher compared with one year ago. This marks three straight months of annual gains for purchase applications.
According to the National Association of Realtors, contract signings kicked off strong in August, with the most contract signings last week in the Midwest, at 21%. The South followed, at 20%; the Northeast at 13%
Homes on the market sold four days faster year over year, as total inventory is down 35%.
Demand for housing continues to rise, held back only by the shortage of homes for sale. Homebuilders are ramping up production and mortgage applications for newly built homes are surging even higher. The demand for buying homes decreased dramatically amid the pandemic, but now incoming data is suggesting the market is beginning to rebound as the demand for new mortgages is starting to see an increase. V-shaped recovery is no longer a question.
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