California Mortgage Refinance Fee Delayed Until December 1, 2020

California homeowners who are thinking about refinancing their mortgage loans in 2020 have a new incentive for doing it sooner rather than later.

A new government-imposed refinancing fee will take effect on December 1 of this year. This fee could affect many homeowners in California who refinance their homes on or after December 1.

What Is This Mortgage Refinance Fee?

At this point, you might be thinking: What refinancing fee? And you’d be in good company.

This new lending requirement, imposed by federal housing officials in response to COVID-related economic uncertainty, caught a lot of people off guard. It was such a surprise that one of the agencies involved agreed to postpone the effective date.

But let’s back up a minute. What is this new refinance fee affecting California homeowners, along with other states? Why was it created, and how much will it cost you as a borrower?

The Adverse Market Refinance Fee, as it’s known, was created by Freddie Mac and Fannie Mae as a kind of protective measure. Fannie and Freddie are the two government-sponsored enterprises (GSEs) that buy loans from lenders and sell them to investors via the “secondary” mortgage market.

Back in August, the two GSEs announced they would start charging an “Adverse Market Refinance Fee” on most mortgage refinancing loans in California and nationwide. According to an August 12 informational bulletin issued by Freddie Mac, this fee is being charged to offset the increased risk and economic uncertainty brought on by the coronavirus (COVID-19) pandemic.

To quote that bulletin:

“As a result of risk management and loss forecasting precipitated by COVID-19 related economic and market uncertainty, we are introducing a new Market Condition Credit Fee in Price.”

The Federal Housing Finance Agency (FHFA), which oversees Freddie Mac and Fannie Mae, offered more details about the reasoning behind the new fee. As they explained in a new release from August 25:

“…actions taken by the Enterprises [Fannie and Freddie] during the pandemic to protect renters and borrowers are conservatively projected to cost the Enterprises at least $6 billion and could be higher depending on the path of the economic recovery.”

That news release also stated that some borrowers would be exempt from the forthcoming refinance fee. The following loan types and scenarios are exempted:

• Refinance loan amounts below $125,000
• Fannie Mae’s “HomeReady” refi program
• Freddie Mac’s “Home Possible” refi program

The exemption for loans under $125,000 probably won’t apply to a lot of homeowners in California. Many (if not most) of the folks who refinance their mortgages in California have loan balances above $125,000. As a result, many homeowners in the state could encounter this additional fee when refinancing their mortgage loans.

How Much Does It Cost?

The adverse market refinance fee will cost borrowers an additional 50 basis points. That’s mortgage lender jargon for 0.5% of the loan amount.

To figure out how much this fee might cost under different refinancing scenarios, you can simply multiply the estimated loan amount by .005 (the decimal form of 0.5%).

For example, here’s what the fee would be for different amounts:

• $300,000 loan = $1,500
• $400,000 loan = $2,000
• $500,000 loan = $2,500
• And so on…

As you can see, this fee can really add up, especially when the borrower is refinancing a relatively high loan amount (common in California). So the best-case scenario would be to avoid it altogether, if possible. And that’s all about timing. In this regard, refinancing sooner rather than later could save you money.

As a result of this new fee — and the scheduled start date of December 1, 2020 — we could see a sharp rise in California mortgage refinancing activity over the next couple of months.

We expect that a lot of homeowners will rush to capitalize on today’s low interest rates while avoiding this forthcoming refinance fee at the same time. That would be a double win, from a borrower’s perspective.

When Does It Take Effect?

A lot of housing industry groups, including the Mortgage Bankers Association and the National Association of Realtors, urged the FHFA to reverse the fee entirely. While the regulatory agency did not agree to those requests, they did agree to postpone the implantation date.

The Adverse Market Refinance Fee was previously scheduled to take effect today, September 1. Instead, FHFA officials announced they would delay it for three months. The revised effective date will be on December 1, 2020.

It’s also important to note the language used within the original bulletin. It stated that the refinancing fee would apply to loans with “Settlement Dates on or after September 1, 2020.” With the FHFA’s three-month postponement, we could revise the above statement to read “Settlement Dates on or after December 1.”

So the closing date is important. That’s what determines whether or not the new fee will apply.

Refinancing in California: Sooner Rather Than Later

California homeowners who are planning to refinance have another incentive for doing it soon. Mortgage rates are currently hovering near a 50-year low, as of September 2020. But we don’t know how long they’ll remain at these low levels.

Related: Why it’s a good time for a refi

During the week of August 27, 2020, the average rate for a 30-year fixed mortgage loan dropped to 2.91%. That’s just a shade above the all-time record low (to date) set during the first week of August, when 30-year rates fell to an astoundingly low average of 2.88%.

These figures are based on the weekly mortgage industry survey conducted by Freddie Mac. According to a recent statement from Freddie Mac’s research team:

“This year has been anything but normal and as the uncertainty lingers, mortgage rates remain near record lows. These rates continue to incentivize potential buyers and the home buying season, which shifted from spring to summer, will likely continue into the fall.”

Ask us: Do you plan to refinance your home in California in the near future? Do you have questions about the process or how it might benefit you? Contact us today. Bridgepoint Funding has been serving the mortgage needs of Californians for nearly 20 years. And we look forward to hearing from you!