Will lenders refund fees paid for a market downturn that never materialized?

Mortgage giants Fannie Mae and Freddie Mac squeezed $5.9 billion from refinance borrowers, citing fears the pandemic would spark an “adverse market.”

By Jeff Lazerson | jlazerson@mortgagegrader.com | MortgageGrader.com | July 25, 2021

Chino Hills resident Rick Serpa paid an extra $2,000 when he refinanced his mortgage last April to help cover costs for a pandemic-induced market downturn. But the downturn never materialized.

Now Serpa is wondering how to apply for his refund.

“I am generally one to ignore the idiocy of the world we have been in for the past couple of years. I’m making an exception for this one,” Serpa wrote in an email. “Since the adversity never arrived, the money collected under the program wasn’t spent by Fannie or Freddie.”

Serpa might be onto something.

The federal government’s mortgage regulator, the Federal Housing Finance Agency, mandated that lenders start charging an extra half-percentage point fee in December for all loans being sold to Fannie Mae and Freddie Mac. A half-point fee amounts to $2,500 on a $500,000 loan.

It was designed to cover losses projected from the COVID-19 pandemic, FHFA said – losses that have yet to occur.

Indeed, a brief housing slump that occurred in the spring of 2020 turned into a rampaging housing boom as buyers rushed to take advantage of record low mortgage rates and others sought larger homes while working remotely.

Today, just 1.8% of Fannie and Freddie mortgages are in forbearance, according to the Mortgage Bankers Association, down from about 6% in May 2020.

The mortgage delinquency rate hit its lowest level since the onset of the pandemic and is now back below its pre-Great Recession average, according to Black Knight. The share of mortgages in active foreclosure fell to yet another record low in June at 0.027%.

Yet, Fannie and Freddie managed to collect an estimated $5.9 billion from borrowers like Serpa who paid the half-point “adverse market refinance fee,” said Guy Cecala, publisher and CEO of Inside Mortgage Finance.

On July 16, FHFA announced it’s eliminated the fee at the end of the month. The announcement quoted Acting Director Sandra L. Thompson cheerily saying the action “will help families take advantage of the low-rate environment to save more money.”

But the FHFA’s announcement was unclear whether any refund is coming.

The FHFA expects lenders who were charging the fee to pass the cost savings back to borrowers, the announcement said.

Which lenders? This sounds like distancing language. And “expectation” appears to be code for you better do this.

Does Acting Director Thompson mean lenders need to make their customers whole for any mortgages being delivered to F & F after July 31 by crediting or coughing up the one-half point refund?

Or is she directing lenders to refund borrowers from the beginning of the great refinance adverse market fee rip-off? If so, will Fannie and Freddie credit the lenders the half-point for each refinance so lenders can then credit their borrowers? Or will Fannie and Freddie get to keep the half-point, but require the lenders to make their customers whole?

FHFA did not respond to my queries to clarify by press time.

Nothing FHFA does to address this refund question would surprise me. FHFA (F & F’s regulator and conservator) — and Fannie and Freddie for that matter — have a long history of being arbitrary and capricious.

Since last week’s announcement, many lenders removed the adverse market fee for refinance transactions for which loan documents had not yet been issued.

Certainly, ask your mortgage lender if your mortgage is headed to, or was already purchased by, Fannie and Freddie. If so, then ask about the elimination of this adverse market fee if your refinance loan has not yet funded.

If it has been funded, contact your mortgage servicer about any potential refund. You can point to the key sentence in FHFA’s July 16 press release’s stating that FHFA’s expectation is that lenders who were charging borrowers the fee will pass cost savings back to them.

If you haven’t refinanced yet, or you are looking for a lower rate, rates have been trending down recently. On top of that, you can expect a one-eighth reduction in your mortgage rate or a one-half-point reduction in your costs.

Not bad.

Freddie Mac rate news: The 30-year fixed rate averaged 2.78%, 10 basis points lower than last week. The 15-year fixed rate averaged 2.12%, down 10 basis points to an all-time low.

The Mortgage Bankers Association reported a 4% decrease in mortgage application volume from the previous week.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $548,250 loan, last year’s payment was $67 more than this week’s payment of $2,247.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with one point cost: A 30-year FHA at 2.25%, a 15-year conventional at 1.875%, a 30-year conventional at 2.5%, a 15-year conventional high-balance ($548,251 to $822,375) at 1.99%, a 30-year conventional high-balance at 2.69% and a 30-year fixed jumbo at 2.875%.

Eye catcher loan of the week: A 30-year fixed mortgage at 2.875% without closing costs.

Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or jlazerson@mortgagegrader.com. His website is www.mortgagegrader.com.

* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.