(Bloomberg) -- Fannie Mae and Freddie Mac’s regulator delayed for three months a controversial new fee on most mortgage refinances that could raise costs for borrowers.
The 0.5% charge will take effect Dec. 1, not Sept. 1 as initially planned, the Federal Housing Finance Agency said in a Tuesday statement. The FHFA also said that loans with balances of less than $125,000 will be exempt from the fee, meaning it won’t impact many consumers with lower incomes.
Lawmakers and industry groups have criticized the fee, arguing that it’s inappropriate to make it more expensive to refinance loans during the coronavirus pandemic, particularly at a time when many consumers are eager to take advantage of historically low borrowing rates. In an Aug. 12 statement, Mortgage Bankers Association President Bob Broeksmit said the refinancing charge “flies in the face” of Trump administration demands that federal agencies do all they can to help struggling homeowners.
In its Tuesday statement, the FHFA defended the fee, saying it’s necessary to cover pandemic-fueled losses for Fannie and Freddie that are projected to reach at least $6 billion. The companies, which have been under the government’s control since the 2008 financial crisis, have pursued several costly actions during the economic slowdown to keep renters and homeowners in their residences, the FHFA said.
Fannie and Freddie don’t make loans. They buy them from lenders, wrap them into securities and guarantee the repayment of principal and interest to investors. Such lenders could decide to absorb some of the costs from the new charge themselves rather than pass them on to consumers.
The MBA has estimated that the fee would raise costs for the typical borrower by $1,400. The industry group praised the FHFA’s decision to delay the charge.
“Extending the effective date will permit lenders to close refinance loans that are in their pipelines and honor the rate lock commitments they made to their borrowers, ensuring that economic relief in the form of record low interest rates will continue to flow to consumers,” Broeksmit said in a statement.
(Updates with MBA comment in last paragraph.)
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