Sorry lenders: FHFA, GSE officials say mortgage refi fee is on track
There's been hope among lenders who sell loans to the government-sponsored enterprises that a pending 50-basis-point refinance fee that's been postponed could be entirely avoided.
But when asked about the fee at the virtual Mortgage Bankers Association conference this week, executives at the GSEs and the director of their oversight agency all said they need to press forward with the rule that is scheduled to go into effect on Dec. 1.
"The bottom line is, it's never easy to raise your prices and there’s never a good time, but when it's the right thing to do, you have to do it," Hugh Frater, CEO of Fannie Mae, said in a panel at the conference.
Frater and Freddie Mac CEO David Brickman both said adding the fee is the right thing to do because the pandemic has increased risks and expenses the GSEs need to address.
"Costs have changed, risks have changed. What we put in place is an appropriate and prudent response to that change in the external environment," Brickman said.
The current version of the fee has a carve-out for certain mortgages, aimed at serving borrowers with affordability challenges and smaller-balance loans, Frater noted.
"We believe it can be reasonably borne by lenders in the system, especially given the wide spreads the industry is realizing today," Frater said. "In fact, we judge that this fee won’t materially impact anyone's ability to refinance and they will still save money."
Kristy Fercho, executive vice president and head of home lending at Wells Fargo, said during the discussion with Frater and Brickman that she did think the postponement of the fee did resolve at least one key concern associated with it, which was that it allowed lenders to avoid what otherwise would have been a price shock to their loan pipelines from rates they'd already locked in when the fee was originally announced.
"I think we got it to the right place, which was the pipeline coverage," said Fercho, who moderated the discussion and also is the MBA’s 2021 chairman-elect.
Brickman's and Frater's remarks largely echoed those made by Federal Housing Finance Agency Director Mark Calabria at the MBA's annual conference a day earlier.
Borrowers with loan balances of $125,000 or less, nearly half of whom are at or below 80% of area median income, are exempt from the fee, Calabria noted. Also exempt are two affordable products, Fannie Mae's HomeReady and Freddie Mac's Home Possible loans.
Calabria noted that Congress may take the opportunity to review alternatives to the fee prior to its Dec. 1 implementation date, but added that the charge otherwise is on track to go into place as planned.
That said, federal elections coming in November further complicate efforts to foresee what policymakers might want to do about a housing-related fee set for December.
Calabria has been working to improve the GSEs' finances so that they can be removed from government conservatorship, and noted on Monday that their leverage ratios have been dangerously low.
"When I walked in the door at FHFA, Fannie and Freddie were leveraged over 1,000 to 1. If Fannie and Freddie had been leveraged 1,000 to 1, they would have already failed when COVID hit. On the other hand, if Fannie and Freddie had more capital when COVID hit, they would have been able to provide even more support to the market," he said.
In addition to confirming plans for the fee, Calabria said that the FHFA would be providing a formal opportunity to provide feedback when the GSEs considered new products or lines of business in the future, and would work to preserve policies providing parity for smaller lenders.
"Small lenders must have access to the secondary markets on terms equitable with large lenders," he said.
A group of 45 small and midsized mortgage lenders recently wrote a letter to Calabria and Treasury Secretary Steve Mnuchin asking them to make policies ensuring Fannie and Freddie provide equitable pricing to players of all sizes permanent, according to the Community Home Lenders Association.