A new refinancing fee previously set to go into effect in September will be delayed, a window of opportunity for many homeowners who want to take advantage of mortgage rates near historic lows.
The new 0.5% mortgage refinance fee won’t be implemented until December 1, according to Fannie Mae and Freddie Mac, which back millions of mortgages. Those with refinance loans below $125,000 are exempt from the fee altogether.
The moves comes after the government-sponsored enterprises faced backlash from consumer groups and lenders, alike, for the new fee that would cover nearly $6 billion losses at the agencies.
Still, borrowers should act soon to reap any refinancing benefits without incurring on average $1,400 that the fee would add. Mortgage rates remain below low 3% — at 2.99% — a slight uptick from the record low of 2.88%.
“This is a short-term reprieve for any borrower who hasn’t already started an application to refinance on a conforming loan program,” said Brian Gilpin, vice president of capital markets at Embrace Home Loans. “Since mortgage companies and banks turnaround times are about 60 days at best for refinances, I recommend not delaying any longer to apply.”
The fee is intended to help Fannie and Freddie recoup losses from pandemic-related housing relief. Under the CARES Act, borrowers can seek forbearance on their mortgage payments up to 360 days if they are experiencing a coronavirus-related hardship.
Nearly $4 billion in loan losses at the agencies are due to forbearance defaults with an extra $1 billion in foreclosure moratorium losses, and $1 billion in servicer compensation and other forbearance expenses.
Still, as Americans stretch their savings during the pandemic that could linger for some time, a delay to December may not be enough, especially if job losses continue to mount. Those homeowners seeking a refinance after the implementation date would face higher expenses.
“In an environment where unemployment continues at very high levels, the pace of economic recovery remains sluggish, and homeowners are actively trimming expenses, the fee would compound existing challenges,” said said George Raitu, senior economist at Realtor.com, a real estate listing site, “and could practically lock some homeowners into their higher mortgage rates for a longer period.”