Why do this? More importantly, why do this now?
As I write this blog entry, I cannot make a single argument in support of the GSEs’ decision to impose a 50 basis point price increase on all refinances, effective Sept. 1.
Why, in the middle of a global pandemic, when millions of Americans are struggling, would FHFA and the GSEs make such a callous decision?
Since FHFA cravenly declined to issue any statement and instead directed the agencies to issue releases after business hours in mid-August during a Congressional recess, we are left to guess at FHFA’s motives.
Regardless, this fee will have adverse market effects on refinance loans purchased by the GSEs. This deeply misguided policy also undermines both Federal Reserve policy to keep rates low and FHFA’s recently announced directives to support homeowners.
How does a $1,400 tack-on fee in the middle of an unprecedented economic crisis support the American borrower? It will cost lenders hundreds of millions of dollars – the bulk of enormous, locked pipelines cannot be closed and delivered in 17 days – and it will cost American consumers billions in the midst of a pandemic, when the administration claims to be working to get relief and stimulus to the struggling economy.
You might be asking how we arrived at this number. Tacking on a half-point to an average GSE loan of $280,000 is $1,400.
What we all ought to be asking is where the money this fee will generate goes. The GSEs cited “market and economic uncertainty resulting in higher risk and costs” as a justification for this new policy. While the first quarter of 2020 was difficult, and allowances for loan loss reduced net income for Fannie and Freddie, both GSEs have enjoyed robust profitability in the second quarter, combining for $4.3 billion in net income. So, it’s hard to see how this is anything other than a cash grab.
FHFA is also withdrawing (after August 31st) a policy that allows the GSEs to purchase loans when borrowers experience COVID-19-related financial hardships shortly after closing and go into forbearance before the loan is delivered to the GSEs. The current policy has provided stability to the market and ensured that lenders could comply with the spirit of the CARES Act by providing forbearance to borrowers before their loans are delivered to Fannie Mae or Freddie Mac.
Legislation reflecting this intent has recently been introduced in both chambers of Congress, and we believe the GSEs should continue purchasing these loans for as long as lenders are mandated to offer forbearance to borrowers. They are rewarded handsomely for the perceived additional risk, with 7-point pricing add-ons (or 5 points for first time homebuyers).
We have issued a blunt statement and an MAA Call to Action, demanding that FHFA withdraw this directive immediately. This is America, and we will use whatever resources we can to make our voices heard. We are calling on senators, representatives, trade associations, consumer groups, and policymakers to join us in ending this wholly unwarranted action.
The whole system tightens up at exactly the wrong time. There is a new and better way to buy a home and a faster path to home ownership. Skip the banks, the interest rates and restrictive loan process!
The loans that are subject to default, are not the actively employed Borrowers that are refinancing their homes -now or in the near future – that have remained solvent in the last 6 months of this pandemic.
This is simply price-gouging future customers, as a response to prior/current customers falling victim to this unforeseen event.