Banking and Finance Law Daily ‘Surprise’ mortgage fee prompts Senate questions, draws rebukes from industry
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Monday, August 17, 2020

‘Surprise’ mortgage fee prompts Senate questions, draws rebukes from industry

By Jacob Bielanski

The Federal Housing Finance Agency announced a 50 basis-point "Market Condition Credit" fee, prompting various groups and members of Congress to criticize the move as directly undermining other federal efforts to assist homeowners during the COVID-19 pandemic.

The head of the Federal Housing Finance Agency (FHFA) was questioned by Sen. Mike Crapo (R-Idaho), Chair of the Senate Banking Committee, in an August 14 letter about the agency’s basis for a new fee that would add approximately $1,400 in costs to mortgage refinance applications approved after September 1. The questions came two days after Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac, announced what they called an "Market Condition Credit" fee of 50 basis points to any cash-out and no cash-out refinance application that prompted immediate and public criticism from a number of consumer, housing industry and banking groups.

Crapo did not offer any direct criticism, but sought answers from Calabria on the underlying justification for the fees. Specifically, Crapo’s letter sought to understand how the date and basis points were determined, why the GSEs requested the fee at all, and what impact the FHFA expected from the new fee. A final question appeared to measure the possibility to apply the fee only to "applications taken," instead of any modification completed, after September 1. Under the current structure, the new fee could potentially be applied to applications begun prior to the Wednesday announcement. "Fannie Mae, Freddie Mac, and FHFA have taken many critical steps to stabilize the housing market during these challenging times, and I look forward to working alongside you in that effort in the months ahead," he said. Crapo’s letter gave no deadline for the FHFA’s response.

Democrats seized on the announcement to criticize the administration for its overall economic response to the pandemic. Senator Sherrod Brown (D-Ohio), Ranking Member of the Senate Banking Committee, said in a press release that "This is what one would expect from Trump’s FHFA Director. FHFA and the GSEs’ decision to raise costs on homeowners will hurt families across the country. In the middle of the worst economic downturn since the Great Depression, the GSEs and their regulator should be fulfilling their mission to support homeowners and the housing market. Instead, they’re doing just the opposite."

In a press release from Rep. William Lacy Clay (D-Mo), Chair of the House Subcommittee on Housing, Community Development and Insurance, and Rep. Maxine Waters (D-Calif), Clay argued that under the "guise" of a loan-level price adjustment, the FHFA has ignored "conventional wisdom" in its decision. Waters said the policy was likely part of a continued focus by FHFA director Mark Calabria to release the GSEs from conservatorship, a focus she argued was "inappropriate" given the national emergency.

Industry response. Of particular concern to bankers and legislators was the decision to make the fee applicable to any refinancing agreement finalized after September 1. The Independent Community Bankers of America statement called the fee "destructive and unnecessary" and asked the FHFA and GSEs to reconsider. The fee would be "retroactive" for refinance applications where the pricing is already locked, the ICBA argued, causing losses to banks "struggling" to comply with federal COVID-19 response mandates, such as loan forbearance and modification programs.

"Adding this fee and making it effective in less than three weeks’ time will throw the current refinance market into disarray," American Bankers Association President and CEO Rob Nichols wrote in letter to the FHFA. The ABA letter also provided the estimate of $1,400 in increased costs on an average-sized loan.

Consumer groups response. A Center for Responsible Lending statement included support from nearly two dozen other groups, including representatives from home building, real estate, state housing agency, and affordable housing groups. "Wednesday night’s surprise announcement by Fannie Mae and Freddie Mac conflicts with the Administration’s recent executive actions urging federal agencies to take all measures within their authority to support struggling homeowners," the joint statement read. "The additional 0.5% fee on Fannie Mae and Freddie Mac refinance mortgages will raise costs for families trying to make ends meet in these challenging times."

Companies: American Bankers Association; Center for Responsible Lending; Fannie Mae; Freddie Mac; Independent Community Bankers of America

MainStory: TopStory Covid19 GovernmentSponsoredEnterprises

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