Refinancing? You May Be Subject To The New “Adverse Market Fee”. The Reason For The Fee May Shock You

​A recent change in Fannie Mae and Freddie Mac backed refinances subtly underscores an impending crisis that is not garnering much attention from the national media. Most refinanced loans closed on or after December 1st and subsequently sold to Fannie and Freddie will be subject to a 0.5% “adverse market fee”.[1] Whether those costs are passed onto the consumer, absorbed by the lender, or some combination therein is at the discretion of the lender. However, the reason for the fee signals a national housing crisis set to materialize in the not-to-distant future.
 
Amongst the backdrop of headlines of Presidential pardons and surging COVID-19 statistics is the very real fact millions of Americans are facing an imminent threat of homelessness. Currently, there are federal restrictions prohibiting landlords from evicting tenants that are unable to pay rent due to COVID-19. Those protections started with the passage of the CARES Act. Federal protections were extended by an order from the Center for Disease Control and Prevention and were set to expire on December 31, 2020.[2]  The enactment of the recent $900 billion pandemic relief bill will extend federal protections until the end of January 2021. While many states and localities have their own restrictions on evictions and foreclosures, the recent relief bill is the only federal protection extending into the new year.
 
These moratoriums are not permanent. Tens of millions of people may lose their homes when these temporary safeguards are eventually removed.[3] And eventually, the safeguards will be removed.
 
How is this related to the adverse market fee? The Federal Housing Finance Authority (“FHFA”) anticipates at least $6 billion in losses incurred to protect the American public from forbearance defaults and other moratorium-related losses enacted due to COVID-19.[4] This loss is generally viewed as a conservative estimate. The implementation of the adverse market fee is to help make up for this multi-billion-dollar loss. FHFA decided to implement the adverse market fee on refinances of most loans over $125,000.00, stating in relevant part:
 
[The adverse market fee] will exempt refinance loans with loan balances below $125,000, nearly half of which are comprised of lower income borrowers at or below 80% of area median income. Affordable refinance products, Home Ready and Home Possible, are also exempt[5]
 
FHFA declined to implement the fee on home purchase loans to prevent any negative impact on the housing market, during a time when the economy is already facing serious challenges. This hasn’t stopped real estate and lending groups from decrying the fee, with some groups estimating it will increase costs $1,400.00 on average: "This announcement is bad for our nation's homeowners and the nascent economic recovery. We strongly urge FHFA, which had to approve this policy, to withdraw this ill-timed, misguided directive."[6]

​We are in unchartered waters when it comes to life post-COVID-19, and if this is one way to help prevent homelessness and another housing collapse, isn’t that a net-positive for homeowners? Or perhaps, is this yet another way the government is passing on the burden of a bail out to middleclass America? After all, we’re all living in a time when the stock market is regularly hitting record highs, while food insecurity statistics continue to rise.

by- Ryan Westerman, Esq. 
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[1] https://www.fhfa.gov/Media/PublicAffairs/Pages/Adverse-Market-Refinance-Fee-Implementation-Now-December-1.aspx
[2] https://www.cdc.gov/coronavirus/2019-ncov/downloads/eviction-moratoria-order-faqs.pdf
[3] https://www.vox.com/21569601/eviction-moratorium-cdc-covid-19-congress-rental-assistance-rent-crisis
[4] https://www.marketwatch.com/story/fannie-mae-freddie-mac-will-delay-controversial-refinance-fee-2020-08-25
[5] https://www.fhfa.gov/Media/PublicAffairs/Pages/Adverse-Market-Refinance-Fee-Implementation-Now-December-1.aspx
[6] https://www.mba.org/2020-press-releases/august/mba-statement-on-the-gses-adverse-market-refinance-fee

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