Mortgage rates have plummeted after a federal agency announced it would postpone a fee on refinance loans that was sprung on lenders a couple of weeks ago.
The coronavirus "adverse market" fee will now take effect Dec. 1, instead of Sept. 1 — and the relief for borrowers has been immediate. Average 30-year rates have sunk to their lowest level since before the new surcharge first became news.
But one industry expert warns that homeowners who want to grab a low refinance rate likely have just a few weeks until the fee starts having an effect again.
A fee that caused a furor
Lenders had been raising rates to start compensating for the new surcharge, but it appears they've quickly undone those increases.
The fee postponement was announced on Tuesday by the Federal Housing Finance Agency, or FHFA. On Wednesday, rates on 30-year fixed-rate mortgages slid to an average 2.94%, from 3.09% a day earlier, according to Mortgage News Daily's survey of lenders.
Rates are now the lowest since Aug. 12, when the survey put the average at 2.92%. Later that day, lenders were first informed about the fee.
The word came from Fannie Mae and Freddie Mac, the two government-sponsored mortgage giants that buy most U.S. home loans from lenders. Their new charge will tack another 0.5% onto the cost of refinance mortgages.
That means the average borrower will have to pay an additional $1,400, says the Mortgage Bankers Association. The MBA had been fiercely protesting the fee, but it now says it welcomes the delay.
The FHFA regulates Fannie and Freddie and says they need to raise the price of a refinance to make up for $6 billion they expect to lose thanks to COVID-19. The agency says most of that is likely to come from homeowners defaulting on their loans during the current recession.
Courtesy of the FHFA, homeowners have just been given more time to refinance at ultra-low mortgage rates, though maybe not too much more time.
The retreat for mortgage rates could be temporary
Now that the refinance fee has been pushed to the side for a while, mortgage rates will probably keep going down and may even hit more new lows.
"But the catch is 'all other things being equal,'" cautions Matthew Graham, chief operating officer of Mortgage News Daily. "In other words, if the bond market suffers, it could offset the anticipated benefit."
Mortgage rates closely track the interest, or "yields," on Treasury bonds. The benchmark 10-year Treasury yield has been bouncing higher on promising news about the economy.
Graham says it's important for refinancing homeowners to understand how the timing works with the new fee.
If you want to head it off you don't have until Dec. 1, the new start date, because lenders will need time to sell and deliver your loan to Freddie Mac or Fannie Mae — a process that can take up to 60 days.
"Bottom line: This fee will be a fact of life for most rate quotes by early October in almost every case. So you have about a month to lock if you're going to try to beat it," Graham writes.
That means you need to soon start gathering and comparing mortgage offers from at least a handful of lenders, to find the lowest rates available where you are.
The shop-around approach also works well when the time comes to pay your annual homeowners insurance premium. Go online and check rates from several insurance companies, so you can feel confident you're not overpaying for your policy.