Patrick Iturra, Asset/Investment Manager & Consulting April 26, 2023
Understanding Fannie Mae and Freddie Mac’s Mortgage Fee Plan
Fannie Mae and Freddie Mac have introduced a new mortgage fee plan causing controversy among borrowers with high credit scores. The Federal Housing Finance Agency (FHFA) has announced that starting May 1, 2023, all refinance mortgages will be subject to a 0.5% fee. The fee aims to offset the increased risk that Fannie Mae and Freddie Mac are facing due to the COVID-19 pandemic.
However, many are concerned that this fee unfairly targets borrowers with excellent credit scores. This article will examine the Fannie Mae and Freddie Mac mortgage fee plan and its potential impact on borrowers and the housing market.
The FHFA claims the fee is necessary to offset the increased risk the GSEs face due to the COVID-19 pandemic. With millions of Americans facing financial hardship and potential job loss, the FHFA argues that Fannie Mae and Freddie Mac are at a higher risk of default than before the pandemic. By introducing this fee, the FHFA hopes to shore up the GSEs’ finances and ensure they remain stable during this challenging time.
This Matrix is effective for all whole loans purchased on or after May 1, 2023, and for loans delivered into MBS with issue dates on or after May 1, 2023, unless otherwise noted below. For LLPAs prior to this date, see the Loan-Level Price Adjustment Matrix
The Controversy Surrounding the Mortgage Fee Plan
However, critics of the fee argue that it unfairly targets borrowers who have demonstrated financial responsibility and have excellent credit scores. These borrowers are typically viewed as having a lower risk of default and should not be subject to the same fees as higher-risk borrowers.
Additionally, opponents of the fee claim that it will disproportionately impact minority and low-income borrowers, who are more likely to have higher credit scores but may not have as much cash to cover the additional costs.
“David Stevens, a former federal housing commissioner and former CEO of the Mortgage Bankers Association, expressed his surprise at the new mortgage fee plan, calling it “unprecedented.” In a statement to the New York Post, Stevens said that he had been inundated with emails from mortgage companies and CEOs expressing their shock at the move. While the fee increase may not result in significantly higher monthly mortgage payments for most borrowers, it could add up to thousands of dollars throughout mortgage repayment.”
For example, a borrower with a $400,000 loan and a 6 percent mortgage rate may only see an increase of about $40 per month, which equates to an extra $480 per year. In this article, we’ll examine the impact of the fee increase on borrowers and the housing market.
Expert Analysis: Is the Mortgage Fee Plan Justified?
In response to these concerns, some members of Congress have called on the FHFA to reconsider the fee. In a letter to FHFA Director Mark Calabria, several lawmakers argued that the price could harm the housing market and slow economic recovery.
Whether the FHFA will heed these calls and adjust its fee plan remains to be seen. In the meantime, borrowers with high credit scores will need to factor this additional cost into their refinancing decisions and be prepared for the possibility that they may end up paying more for their mortgages than anticipated.
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“I don’t sell houses. I grow your Assets” –Patrick Iturra, Asset/Investment Management & Consulting.