When the initial announcement was made on the evening of Aug 12th, the FHFA ‘adverse market’ LLPA refinance fee caused shockwaves in the industry:
- Many trade organizations took issue with the fee itself. The California Association of Realtors felt it was “taking advantage of the current economic crisis” to raise additional revenue. Some have called it a tax
- The relatively short notice was an unforeseen burden on lenders and consumers alike. The Mortgage Bankers Association called it ill-timed and misguided
Let’s first explore what exactly the fee does and then we’ll review the complex timeframe.
What is the fee?
The Loan-Level Price Adjustment (LLPA) is a fancy acronym for a fee applied to conforming loans that meet the funding limits of the FHFA and the guidelines of the GSEs (Fannie Mae and Freddy Mac). Conforming loans represent the vast majority of mortgages. The fee has never applied to nonconforming Jumbo loans over $510,400 nor to VA, USDA and FHA loans.
The -0.50% fee (or 50 bps, pronounced ‘bips’) is for refinances only. For a $300,000 mortgage that is an extra $1,500. It’s on top of any “points” someone might be paying at origination.
They have clarified that the refi fee does not apply to any mortgage under $125,000 nor certain affordable housing programs like Home Ready.
The FHFA says the fee is to offset an estimated $6 billion in losses due to forbearance and foreclosure. With forbearance numbers around 7%, the GSEs will continue buying conforming loans in forbearance through the end of Sept. To give some perspective, last year that number was around 2%.
The fee would have taken effect on Sep 1st – only about two weeks after announcement. Record low interest rates were already fueling both a refi bonanza and the purchase market. Even though lenders prioritize purchase transactions, the ‘pipeline’ of underwriting and funding was getting clogged. 65% of those loans were refinances. The ubiquitous ’30 day lock’ was being pushed over the limit. Newly locked loans were at 45 or even 60 days.
Here’s the rub: the fee was applied to loans already in the funding pipeline as they pass to the GSEs.
This timing meant that even if a loan was applied for and locked in early July, it would have the fee added as it was delivered to Fannie Mae in September. The lenders didn’t have any idea in July that this fee was coming and their price sheets were therefore unadjusted. The banks were caught flat-footed in August and were about to eat a ton of fees come September.
On the morning of Aug 13th originators were scrambling. Meetings were postponed and phones were ringing off the hook. Loan officers were locking loans of most prospects to help them avoid the fee, even those who were on the fence. Sure enough, within hours lenders across the nation started adding the -0.50% fee to their pricing sheets. Of course any consumer unfortunate enough to be floating a loan without a lock was now having to deal with the fee at closing.
Then what happened?
The MBA lobbied to have the fee reversed entirely, but on Aug 23rd FHFA acquiesced only partially and the fee was postponed to Dec 1st. Within days most lenders removed it from their pricing sheets – for a little while. The -0.50% refinance fee is coming back faster than you think.
That’s because Dec 1st is a sneaky date, and here’s why:
- It’s still the date for the fee to be applied upon delivery to Fannie and Freddy at the end of the multi-month funding pipeline…not the beginning
- The lenders are determined not to be caught by surprise once again. Some lenders are already re-implementing the fee on Sep 15th for the consumer
An Aug 28th article in Forbes points out that you shouldn’t delay. In two words: apply immediately.
“Can I refinance after the fee hits?” you ask
Yes, of course. Folks with an old mortgage at 3.75% or higher can probably still benefit from a refinance at currently low rates, even with this fee. Please remember Jumbo loans, loans under $125k, or FHA/VA loans don’t get hit with the fee regardless. There’s no telling when the fee will go away. If you were considering a refinance anyway, now is the time to apply and get a lock. You have only few days left to avoid the fee.The opinions expressed on this article are solely those of its author. Stuart Gaston NMLS 1992605 OR/WA firstname.lastname@example.org
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