Last week on July 16, 2021, the FHFA formally announced plans to eliminate the 0.5% adverse market refinance fee, sending lenders into a competitive race to drop rates for qualified borrowers ahead of schedule.
According to the FHFA press release, “Fannie Mae and Freddie Mac will eliminate the Adverse Market Refinance Fee for loan deliveries effective August 1, 2021.” As a result, lenders will no longer have to pay [Fannie Mae and Freddie Mac] a 50-basis point fee to deliver refinanced mortgages.
If you’re looking to refinance your mortgage, this is good news.
In the past five days, refinance rates dropped significantly, with some lenders offering sub-3% mortgage rates for qualified borrowers.
A handful of questions have been coming in about the change, so let’s dig in.
What is an adverse market fee?
The adverse market fee was a 0.5% refinance fee tacked to Fannie Mae and Freddie Mac refinanced mortgages. The fee was mandated by the FHFA (Federal Housing Finance Agency) in December 2020 to offset projected losses via loan defaults and forbearances. The projected losses hovered at $6 billion, linking potential mortgage defaults to high unemployment and economic unpredictability related to the pandemic.
How does the adverse market refinance fee affect borrowers who want to refinance?
When the refinance fee was in effect, borrowers didn’t pay the 0.5% fee directly. Instead, lenders increased refinance rates to cover the cost of originating the loan.
For homeowners refinancing a mortgage, the loan often included an increased mortgage rate. The raised interest rate was typically 0.125-0.25 percent. Over the life of a 30-year mortgage, this rate hike could cost a homeowner tens of thousands of dollars in mortgage interest.
Are refinance rates dropping for homeowners right now?
Now that the adverse market refinance fee has been eliminated, lenders are passing that savings on. As a result, qualified borrowers will be able to refinance at the lowest rates available as lenders compete for their business.
Homeowners who want to refinance can save thousands of dollars on a mortgage by locking in a lower rate while the competition between lenders is strong.
What are the options for refinancing my mortgage?
If your mortgage is at least 6 months old, you could financially benefit from refinancing your mortgage. A few mortgage options worth considering:
- Cash-out Refinance
- Renovations & Remodels
- Rate and Term Refinance
- Streamline Refinance
- Consolidate a Second Mortgage
Refinancing can save you money on your mortgage, but it can also ending up costing money if you’re not careful. Discuss your situation with an experienced mortgage broker. Remember to consider loan fees, closing costs, and your payoff goals.
The FHFA implemented the adverse market refinance fee in December 2020 to offset projected losses expected from mortgage defaults. However, as the economy rebounds and housing prices continue to increase, the FHFA has decided to eliminate the 0.5% refinance fee. The change will take effect on August 1, 2021.
Now that the FHFA has eliminated the 0.5% refinance fee, lenders are dropping their rates to compete for your business. Some rates are sub-3% for qualified borrowers ready to refinance.
If you’ve been thinking about refinancing a mortgage, now is the time to take action. We partner with mortgage lenders throughout California, Oregon, Washington, and Colorado. We can help you refinance your mortgage to reach your financial goals. Give us a call to get started.