What was the Adverse Market Refinance Fee?

The Federal Housing Finance Agency (FHFA), who oversees Fannie Mae and Freddie Mac removed a 0.5% surcharge applying to refinance transactions in September of 2022. We will discuss what this fee was for and describe the fee being reintroduced in early 2023.

The fee which was in place for several months in 2022 was rolled back in September. It was for all refinance mortgages greater than $125,000. It only applied to conforming loans sold the Fannie and Freddie and did not affect FHA or VA mortgages. The reason for the charge was the uncertainty of mortgages during the pandemic and whether there would be payment or mortgage defaults due to it. There were certain loans which were excluded from the fee, but a majority were affected.

This fee is being reinstated on February 1, 2023, but in a slightly different form and for different reasons. FHFA announced in October 2022 they were eliminating some upfront fees on their affordable mortgage products while implementing targeted increases to the upfront fees for most cash out refinances. The speculation is these increased fees are to plan for possible losses on loans in the future as homeowner’s leverage the unprecedented equity growth realized over the last few years. In other words, these loans can become riskier. Within certain lower credit bands, FHFA reduced the upfront charge and speculation is they would gain market share as many of these loans pursue FHA financing rather than conventional.

It is always a good idea to speak to your trusted Home Loan Adviser at Hall Financial to learn more about what is the best option for you when purchasing or refinancing your home.