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Mortgage rates: 'Santa Claus has come early for homeowners looking to refinance'

The Federal Housing Finance Agency (FHFA) eliminated something called the "Adverse Market Refinance Fee," a huge boon to homeowners looking to refinance their mortgage.

The refinancing fee was implemented in December as a way to pay for some of the pandemic-related mortgage relief. The agency calculated the fee by taking 0.5% of a loan’s balance and adding that to refinance costs.

“To allow families to save more money, lenders will no longer be required to pay [Fannie Mae and Freddie Mac] a 50-basis point fee when they deliver refinanced mortgages,” FHFA said last week in a press release.

The FHFA said the fee and other policies put in place for the pandemic “were effective enough to warrant an early conclusion” of this fee.

“FHFA's expectation is that those lenders who were charging borrowers the fee will pass cost savings back to borrowers,” the agency said.

“Santa Claus has come early for homeowners looking to refinance their mortgages,” Bankrate chief financial analyst Greg McBride wrote in response to the move.

An advertising sign for building land stands in front of a new home construction site in Northbrook, Ill., Wednesday, June 23, 2021, as the housing market rebounds and mortgage rates remain low. (AP Photo/Nam Y. Huh)
An advertising sign for building land stands in front of a new home construction site in Northbrook, Ill., Wednesday, June 23, 2021, as the housing market rebounds and mortgage rates remain low. (AP Photo/Nam Y. Huh) (ASSOCIATED PRESS)

The fee, McBride said, frequently meant that borrowers’ rates were often one-eighth of a percentage point higher than they otherwise might be. In actual dollar terms, the effect is relatively small but not insignificant for some — around $20 per month for a $300,000 loan.

McBride was among the policy's critics.

“The justification for the fee when it was sprung on the market was that it was necessary to pay for the costs of forbearance and pandemic-related payment relief incurred by Fannie Mae and Freddie Mac,” he said. “But the homeowners punished were those that weren’t high risk, weren’t in need of forbearance or payment relief and were in fact reducing their risk to the mortgage finance marketplace by reducing their rates and monthly payments. It never passed the smell test to begin with.”

McBride wrote that the savings from the fee’s elimination should go back into the pockets of people with mortgages. However, some lenders might not pass the savings on, which is why it’s important to shop around and examine different lenders, said McBride.

Ethan Wolff-Mann is a writer at Yahoo Finance focusing on consumer issues, personal finance, retail, airlines, and more. Follow him on Twitter @ewolffmann.

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