A new -.50 basis point fee was announced this week affecting conventional refinances through Fannie Mae and Freddie Mac loans that close after Sept. 1. For a borrower refinancing a $300,000 loan to take advantage of record-low rates, the move will add $1,500 in new costs.
The new fee was announced late Wednesday. Freddie Mac’s notice to lenders cited “risk management and loss forecasting precipitated by COVID-19 related economic and market uncertainty.” Consumer advocates and the lending industry immediately decried the additional cost.
Here is the meat on this as described by Barry Nielsen from Opportunity Bank – “Freddie Mac and Fannie Mae announced an “Adverse Market Conditions” fee of 50 basis points on all refinance loans purchased by Freddie Mac or Fannie Mae on or after September 1st. Obviously the impact is immediate to refi locks as those loans will not be purchased until after Sept 1st. The 50 basis point “LLPA” has already been implement in the Ellie Mae pricing engine (and I’m sure all other pricing engines) by Ellie Mae, and shows in the pricing as any other LLPA would show and price.
From an MBS investor’s perspective the 50 bps refi price reductions slows mortgage prepayment speeds (it lessens the refi incentive and refinance risk portion of MBS pricing).
In laymen’s terms – see article below.