In August of last year, the FHFA decided to add an adverse market fee to the refinancing process. Now, the FHFA is reversing that decision so that homeowners can take full advantage of low market rates. GSE fees are the fees that Fannie Mae and Freddie Mac charge lenders when lenders sell them loans. The GSE fee is Fannie and Freddie’s way of saying “I’m gonna need some collateral”.
Why Was the Adverse Market Fee Introduced?
But here’s the thing. We weren’t in an adverse market. In fact, although we were going through a recession, mortgage rates hit historic lows. So why were the fees raised at all?
Here’s the thing, the previous FHFA director, Mark Calabria, wanted Fannie Mae and Freddie Mac to exit government conservatorship. While the FHFA’s job is to help maintain housing stability and liquidity, the decision to remove Fannie and Freddie from conservatorship was unnecessary.
By privatizing Fannie and Freddie, it would’ve made mortgage interest rates climb higher, because loans through Fannie and Freddie would no longer be backed by the US government. If home loans on the market aren’t backed by the government, they’re seen as riskier investments. That’s when rates and fees would start to go up, which wouldn’t be good.
Right now, low interest rates are the one huge plus we have in such a saturated housing market. Thankfully, Fannie and Freddie remain under government control, and mortgage rates will stay low.
Why You Should Refinance
This past week mortgage rates dipped slightly to 2.88%. Now that the adverse market fee has been removed, homeowners can refinance and reap the full benefits.
Just the other day, I was getting a refinance client ready for pre-approval and they seemed nervous. They had had a rough year with the pandemic and wanted to refinance to be able to cut back on costs. Now, without the adverse market fee in play, I can tell them to expect a savings between $1425 to $1640.
Refinancing Pays for Itself
When you refinance, you can choose from one of the following options:
Cash-out Refinance: A cash-out refinance can be done once you have at least 20% equity in your home. You’ll get a new loan with a low rate, and the difference you’ve taken out in cash added to your new home loan value.
VA Refinance: If you’re a veteran, you can qualify for an even lower mortgage rate than regular refinance loans.
FHA to Conventional: If you bought a home with an FHA loan and are looking to refinance, refinance your FHA loan to a conventional loan. It’ll save you hundreds a month by getting rid of private mortgage insurance.
In the long run, refinancing pays for itself. It’s a creative way of leveraging an asset you already own. Shaving off half a percent on your home loan, knowing when to cash in on equity, and streamlining your finances all come with home owning territory. Don't shy away from it! Knowing how to make use of your wealth gives you financial flexibility.
Once you’ve mastered how to manage your home as part of your wealth, rather than as just a piece of property, you’ll start to see the big picture of housing—and why it accounts for 20% of national GDP.