Low-Balance Refinances now Exempt; Adverse Market Refinance Fee Implementation now December 1
The Federal Housing Finance Agency (FHFA) today directed Fannie Mae and Freddie Mac (the Enterprises) to delay the implementation date of their Adverse Market Refinance Fee until December 1, 2020. The fee was previously scheduled to take effect September 1, 2020.
FHFA is also announcing that the Enterprises will exempt refinance loans with loan balances below $125,000, nearly half of which are comprised of lower income borrowers at or below 80% of area median income. Affordable refinance products, Home Ready and Home Possible, are also exempt.
The fee is necessary to cover projected COVID-19 losses of at least $6 billion at the Enterprises. Specifically, the actions taken by the Enterprises during the pandemic to protect renters and borrowers are conservatively projected to cost the Enterprises at least $6 billion and could be higher depending on the path of the economic recovery.
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 has a statutory responsibility to ensure safety and soundness at the Enterprises through prudential regulation. The Enterprises’ Congressional Charters require expenses to be recovered via income, allowing the Enterprises to continue helping those most in need during the pandemic.
Throughout the pandemic to protect borrowers and renters while supporting the mortgage market, FHFA allowed the Enterprises to:
- Offer forbearance on multifamily and single-family mortgages;
- Buy loans in forbearance;
- Modify mortgage terms to reduce monthly payments and simplify repayment options;
- Provide protections for tenants in properties in forbearance; and
- Provide loan processing flexibility.