Fannie, Freddie reap billions from ‘adverse market’ fee

Avalanche of mortgage delinquencies never materialized, but Fannie and Freddie continue to charge one-half point fee.

By Jeff Lazerson | | | February 21, 2021

From all corners of America, there was outrage over last summer’s announcement of a new one-half point adverse market refinance fee to to build up pandemic related loss reserves.

On a $500,000 refinance, that would cost you either an additional $2,500 or about $33 more per monthly mortgage payment.

According to the announcement by Federal Housing Finance Agency Director Mark Calabria (regulator and conservator for Fannie Mae and Freddie Mac), the agency projected it would need at least $6 billion to cover projected loan losses. That included $4 billion for projected forbearance defaults, $1 billion in foreclosure moratorium losses and $1 billion in loan servicer compensation and other forbearance expenses, according to an FHFA Aug. 25 press release.

Mortgage Bankers Association President and CEO Robert Broeksmit described this action last August as ill-timed and misguided.

Even the White House was miffed.

“It appears only to help Fannie and Freddie and not the American consumer,” a senior White House official said in an Aug. 13 statement.

FHFA delayed but eventually implemented the adverse market toll on Dec. 1 for conventional refinances of $125,000 or more purchased by Fannie or Freddie.

How are mortgages performing?

Pretty darn well. A Feb. 11 MBA press release indicated a dramatic drop in mortgage delinquencies.

“The 92-basis point drop in the delinquency rate was the biggest quarterly decline in the history of MBA’s survey dating back to 1979,” said Marina Walsh, MBA’s vice president of industry analysis.

According to other MBA data, mortgage loans in forbearance declined to 5.29% this week, down from 8.55% in June.

On Feb. 11, the Urban Institute came out with the following blog headline: “The Predicted Foreclosure Surge Likely Won’t Happen, Even among Financially Vulnerable Borrowers.”

“The adverse market fee was delayed long enough. They probably won’t need anywhere near $6 billion,” said Guy Cecala, CEO and publisher of Inside Mortgage Finance. “It should have been clear it wasn’t needed.”

Even Fannie Mae’s own year-end 2020 10-K financial statement stated the following, buried on page 110: “We continue to accrue interest income on the vast majority of our single-family loans in forbearance because we have determined that collection of principal and interest on these loans is reasonably assured.”

That is code for we don’t forgive payment deferrals. We don’t forgive accrued interest. We’ll lop ’em on to the back on the mortgage. There is so much home equity out there that one way or the other, we’re going to get ours.

F and F funded about 1.2 million adverse market qualified refinance mortgages totaling $350 billion from Dec. 1 through Jan. 31, according to Inside Mortgage Finance. At one half-point charge, that’s a whopping $1.75 billion in adverse market fees collected in the first 60 days.

Can you say jackpot?

The Federal Housing Administration never pushed for any type of adverse market refinance fee for FHA for typically financially weaker borrowers with original down payments as low as 3.5%. Nor did the Veterans Affairs Department with VA borrowers typically putting zero down.

Assuming 12 months of mortgage payment forbearance, just 8.8% of Fannie and Freddie borrowers would have less than 10% home equity, compared with 19.3% for FHA borrowers and 26.4% for VA borrowers, according to Black Knight.

What exactly did Fan and Fred do with this motherlode? Neither responded to multiple requests.

There were plenty of headlines from a Google search indicating the private sector is easing up on loan loss reserves. Bank of America’s mortgage loss reserves were $457 million in Q3 and just $2 million more in Q4 at $459 million, according to bank spokesman Bill Halldin.

What about F and F’s boss? Is Director Calabria going to stop charging mortgage borrowers the one-half point toll?

Radio silence from FHFA thus far.

“Are the (government-sponsored enterprises) going to refund to borrowers? Of course not,” said Cecala. “If they had to refund it, they’d be a lot more careful.”

Freddie Mac rate news: The 30-year fixed rate averaged 2.81%, jumping 8 basis points (its highest point since mid-November) from last week. The 15-year fixed rate averaged 2.21%, up 2 basis points from last week.

The Mortgage Bankers Association reported a 5.1% mortgage application decrease 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 $203 more than this week’s payment of $2,256.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with 1-point cost: A 30-year FHA at 2.25%, a 15-year conventional at 2%, a 30-year conventional at 2.625%, a 15-year conventional high-balance ($548,251 to $822,375) at 2.125%, a 30-year conventional high-balance at 2.625% and a jumbo 30-year fixed at 3.25%.

Eye catcher loan of the week: A 30-year fixed-rate at 2.375% with 2 points cost.

Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or His website is

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Jeff Lazerson - Mortgage Columnist since 2011