Surprise Announcement from FHFA Just Made your Refi More Expensive
Didier Malagies • August 13, 2020
Surprise Announcement From FHFA Just Made Your Refi Much More Expensive
Surprise Announcement From FHFA Just Made Your Refi Much More Expensive
By: Matthew Graham
In what can only be described as a cash grab, Fannie and Freddie's regulator just announced a new tax on refinances. Granted, it's not technically a tax, and it wasn't probably even intended to hit the pocketbooks of the American homeowner, but that's unfortunately exactly what it will do. Let's break it down...
What was announced?
The FHFA, Fannie and Freddie's regulator, is implementing a new price adjustment for all refinance transactions of 0.5% of the loan amount (i.e. $1500 on a $300k loan). This applies to loans delivered to Fannie/Freddie in September and thereafter, which is almost all of them that aren't already well underway.
Why?!
They are saying it is due to economic and market uncertainty. Some might consider that to be a load of horse shit because this fee didn't exist last week or last month, but economic and market uncertainty definitely did.
So what's the real reason?
Lender margins are wide. In other words, lenders haven't dropped rates as much as the bond market would allow them to (a decision driven by necessity due to capacity constraints amid a refi boom and unprecedented workflow hurdles created by coronavirus rather than simple greed). FHFA sees the wider margins and concludes lenders have extra profit to spare. That money would help further the FHFA's stated goal of building capital reserves of the GSEs sufficient to end the government's conservatorship of the agencies. In simpler terms, FHFA is saying to lenders "I think some of your money should be our money instead." Rest assured, this fee would never have been considered if rates were higher and lender margins were thinner. But since rates are so low, and margins are so wide, who's going to complain? Plenty for everyone, right?
So who is going to complain?
Ultimately, homeowners. The mortgage community is going to get things started though. Reason being, lenders have tons of loans that are already locked with expiration dates after September 1st. They are going to have to eat 50bps on all those loans. For big lenders, this is 10s of millions of dollars in instantly vaporized profit.
Again, FHFA's rationale is likely that lenders have excess profit anyway, so they can absorb this.
I truly hope that's not their rationale, but if it is, they're dumb. Any time regulators jack up fees for lenders, it's the consumer that ends up paying. I'm not saying that because it sounds sensational, but because there is a consistent track record of correlation. In fact, lenders are ALREADY sending out reprice notifications to raise rates for those loans still eligible to lock today. In other words, if it's not already locked, your refi just got hit for 0.5 points.
Does this affect purchases?
No. You're in luck there. FHFA's explanation, however, is further out of luck. Think about it... Why would "market and economic uncertainty" affect refinance mortgages and not purchases? I'll tell you why... Many lenders currently have higher rates for refis vs purchases due to the insanely high refi demand. Those higher rates mean the lenders have higher margins and more profit on refis (more profit that the FHFA would like to take, but again... they're actually taking it from consumers).
Does this suck as bad as it seems like it does?
Yes. It's a bitter pill to swallow, and a very low class move given the issues facing society at the moment. Granted, the FHFA likely doesn't see it that way. They likely don't think or believe they're taking money out of consumer's pockets, but years and year of past precedent prove that's exactly what's about to happen.
Is there anything I can do to avoid this or make it better?
No. They're the government. They're here to help.
Start Your Loan
with DDA todayYour local Mortgage Broker
Mortgage Broker Largo See our Reviews
Looking for more details? Listen to our extended podcast!
Check out our other helpful videos to learn more about credit and residential mortgages.
Cost of Retirement comfort soars, leaving most far short
1. HOA / Condo Association Loans (Most Common) These are commercial loans made directly to the association, not individual unit owners. Typical uses Roof replacement Structural repairs Painting, paving, elevators, plumbing Insurance-driven or reserve shortfalls Key features No lien on individual units Repaid through monthly assessments Terms: 5–20 years Fixed or adjustable rates Can be structured as: Fully amortizing loan Interest-only period upfront Line of credit for phased projects Underwriting looks at Number of units Owner-occupancy ratio Delinquency rate Budget, reserves, and assessment history No personal guarantees from owners 2. Special Assessment Financing (Owner-Friendly Option) Instead of asking owners to write large checks upfront: The association levies a special assessment Owners can finance their portion monthly Reduces resistance and default risk Keeps unit owners on predictable payments This is especially helpful in senior-heavy or fixed-income communities. 3. Reserve Replenishment Loans If reserves were drained for an emergency repair: Association borrows to rebuild reserves Keeps the condo compliant with lender and insurance requirements Helps protect unit values and marketability 4. Florida-Specific Reality (Important) Given your frequent focus on Florida condos, this resonates strongly right now: New structural integrity & reserve requirements Insurance-driven roof timelines Older associations facing multi-million-dollar projects Financing often prevents forced unit sales or assessment shock Many boards don’t realize financing is even an option until it’s explained clearly. 5. How to Position the Conversation (What to Say) You can frame it simply: “Rather than a large one-time special assessment, the association can finance the project and spread the cost over time—keeping dues manageable and protecting property values.” That line alone opens the door. 6. What Lenders Will Usually Ask For Current budget and balance sheet Reserve study (if available) Insurance certificates Delinquency report Project scope and contractor estimate Bottom Line Condo associations do not have to self-fund roofs or major repairs anymore. Financing: Preserves cash Reduces owner pushback Helps boards stay compliant Protects resale values Tune in and learn https://www.ddamortgage.com/blog didier malagies nmls#212566 dda mortgage nmls#324329
Unexpected retirement expenses can strain senior homeowners
