A squabble over a mortgage fee seems badly out of touch during a crisis in which millions of renters face eviction due to the pandemic’s economic fallout.
Government-backed loan buyers Fannie Mae and Freddie Mac said on Tuesday, Aug. 25 that they’ll delay until Dec. 1 a half-point fee on refinanced loans. The surcharge is designed to help pay for losses the agencies estimate will incur while helping financially troubled borrowers. Critics of the fee suggested the Sept. 1 start date was too soon and questioned whether the surcharge was needed at all.
The mortgage industry’s outrage and the resulting regulatory capitulation is a stark contrast to what feels like continued indifference to the plight of tenants and their landlords. As millions struggle to make rent payments, the mortgage industry gathered political opposition against an economic warning signal from Fannie Mae and Freddie Mac.
Mortgage makers have enjoyed profits of a refinancing binge that started in late winter as loan rates were pushed to record lows thanks to the Federal Reserve. Cheap loans nudge consumers and corporations alike to keep the coronavirus-burdened economy humming.
But is this largesse for owners fair help compared with what folks of lesser means got recently? A $600 weekly unemployment bonus was slashed in half, at least in California.
Let’s ponder the size of this refinancing boom, which cut house payments by roughly 10% in the past year.
Stats from Los Angeles and Orange counties show 81,118 loans were refinanced in the second quarter, the nation’s No. 1 metropolitan area for such loan deals, according to Attom Data Solutions. It’s the highest refi count since 2013’s second quarter and 97% higher than the previous three years.
In the Inland Empire, 29,790 mortgages were refinanced — the highest since 2007, and 72% above the three-year average.
The same is true in the Bay Area.
The San Francisco metro area had 34,854 springtime refinancings — highest in seven years and up 96% vs. the three-year average. In the San Jose metro, 14,758 refinancings were a four-year high and were 108% above the three-year average.
And its a nation upswing, too. Attom stats show U.S. refinancings at a seven-year high of 1.7 million this spring, or up 103% compared with the three-year average.
Fairness fee?
Cheap loans and other regulatory efforts have helped many distressed borrowers avoid foreclosure so far.
Meanwhile, tenants got limited deferrals of rent and now face an end of eviction moratoriums put in place to protect them. Rental property owners, unlike mortgage makers, got little assistance.
Still, amid all this lending opportunity, the mortgage industry seemed awkwardly outraged about the new fee — a one-time charge that, for example, would be $2,500 on a $500,000 refinancing.
As a homeowner who’s refinanced several times over the past few decades, I don’t want to pay more fees. But Fannie Mae and Freddie Mac say the “adverse market fee” will help defer $6 billion in pandemic-related losses the agencies have incurred.
Critics of the fee — lenders, loan brokers, real estate salespeople and their lawmaker friends — claim this fee could prevent some owners from benefitting from cheap mortgages.
Now, maybe I’m old and cranky, but the ultra-cheap rates were part of the housing industry rescue — not a windfall for all homeowners. Folks who are able to refinance their mortgage are likely gainfully employed. So this fee is not exactly curtailing pandemic rescue efforts.
“This modest fee will help us continue helping those who are really hurting during the pandemic,” said a joint statement from the agencies’ CEOs: Hugh Frater of Fannie Mae and David Brickman of Freddie Mac.
History lesson
Does anybody in the real estate game remember why Fannie Mae and Freddie Mac are economic wards of the state?
If you’ve forgotten, the two agencies went bust amid the last housing crash when the bad mortgages of the “subprime” era went south and Fannie Mae and Freddie Mac were wiped out. The federal government — with your tax dollars — was forced to take over the duo as a massive wave of foreclosures fed into the Great Recession.
The housing industries should be grateful for the government’s operation of Fannie and Freddie, which are dedicated to keeping mortgage funds low priced and free-flowing. Their actions have been critical in reviving housing from the bubble-bursting days of a decade ago.
And let’s note that powerful people in the Trump administration, plus the “small government” crowd, have long wanted Fannie Mae and Freddie Mac to be privatized. Added fee income could put these two agencies closer to cutting their government ties.
So getting Fannie Mae and Freddie Mac to act like traditional businesses — and doing more things with profits in mind like raises prices in a strong market — might not be the worst “free market” habit to start.
And if the homeownership business is as hot as its promoters claim, this fee won’t slow the industry’s pandemic rebound.
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August 26, 2020 at 06:33AM
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Mortgage refinance fee delayed. But is this ‘help’ really fair? - OCRegister
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