If you’re planning to take out a high-balance or second-home mortgage through Fannie Mae or Freddie Mac, you need to act fast – and probably no later than Jan. 31.
That’s because the Federal Housing Finance Agency (Fannie and Freddie’s regulator and conservator) announced plans to add goliath fees on loans issued with backing from these two mortgage giants.
In high-cost Los Angeles and Orange counties, a high-balance mortgage is a loan ranging from $647,201 to $970,800. The fees apply to owner-occupied homes, non-owner occupied homes, purchase loans, refinance loans and cash-out refinancing.
Technically, the new fees take effect on April 1, but lenders are likely to pass these fees on to consumers about 60 days ahead of this money grab’s official start date. We’re talking most likely Feb. 1. Especially in today’s Omicron infected labor market shortage, it takes time to appraise, process, underwrite and fund your loan ahead of delivering to F or F.
The sooner you secure your rate lock the better — like yesterday. No joke.
Depending on your loan-to-value (down payment or remaining equity in the case of a refinance), this new mandate means you will be charged an additional one-quarter to three-quarters of a point for a high-balance loan. For example, a quarter point on an $850,000 loan equals $2,125; and three-quarters of a point equals an additional expense of $6,375 to you and yours.
Assuming the fee adds a half point to your cost, that would translate to a mortgage rate 0.125% higher. The rate would be 0.25% higher if you received a three-quarter-point fee increase.
For example, on a 30-year fixed, $850,000 loan at 3.25%, the payment would be $3,699. At 3.5%, the payment would be $3,817, or $118 more per month.
It’s even worse for second home financing. We are talking a range of adding 1.125% to 4.125% in additional points – the lower amount if you have at least 40% down or in equity, the higher amount with a minimal down payment — say 10%.
On a $500,000 loan, adding 1.125 points would cost an additional $5,625.
Federal regulations prohibit lenders from charging borrowers more than 3% in points and origination fees. But lenders likely will charge a higher interest rate on the loan should their costs go higher.
For example, if you are putting 10% down on a second home and are trying to absorb an additional 4.125% in fees, your rate could go up 0.75%. On a $500,000 30-year fixed-rate mortgage with a rate of 3%, the payment would be $2,108. At a 3.75% rate, your principal and interest payment would be $2,316, or a whopping $208 more per month.
And this is occurring just six months after FHFA acting director Thompson was crowing in a press release about killing the one-half point “adverse market refinance fee” that her predecessor, Director Mark Calabria, instituted in December 2020. It was all about helping families reduce their housing costs and allowing families to save more money. That idea faded fast with this new announcement.
That press release even had the grandstanding chutzpah to say, “FHFA’s expectation is that those lenders who were charging borrowers the fee will pass cost savings back to borrowers.”
To my knowledge, Fan and Fred never pushed the adverse market fee back to lenders. And lenders never refunded borrowers $5.3 billion collected in fees meant as a cushion for an adverse mortgage market that never materialized.
A host of primarily purchase-driven affordable housing programs are being precluded from these new fees.
“These targeted pricing changes will allow the (Fannie and Freddie) to better achieve their mission of facilitating equitable and sustainable access to homeownership, while improving their regulatory capital position over time,” Thompson’s announcement said.
Call me cynical. If FHFA is sticking it to folks it thinks can more easily afford this hidden tax (borrowers with larger mortgages and second home financing), then why isn’t FHFA using some or all those fees to subsidize costs for low-to-moderate income borrowers?
If you can’t get your transaction done before the fee increase takes effect, you still are likely to find your best high-balance deal through a conventional Fannie or Freddie lender.
Second homes are a different story. You might find cheaper second home pricing elsewhere. I found a rate as low as 3.25% without points, though with 20% down.
Freddie Mac rate news: The 30-year fixed rate averaged 3.22%, its highest rate since May 2020 and up 11 basis points from last week. The 15-year fixed rate averaged 2.43%, up 10 basis points from last week.
The Mortgage Bankers Association reported a 2.7% decrease in mortgage application volume from the previous two weeks.
Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $647,200 loan, last year’s payment was $198 less than this week’s payment of $2,806.
What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages without points: A 30-year FHA at 2.5%, a 15-year conventional at 2.5%, a 30-year conventional at 3.25%, a 15-year conventional high-balance ($647,201 to $970,800) at 2.75%, a 30-year conventional high-balance at 3.375% and a 30-year fixed jumbo at 3.25%.
Eye catcher loan of the week: A 15-year fixed at 2.625% without cost.
Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or firstname.lastname@example.org. His website is www.mortgagegrader.com .