It was quick. Friday morning, Federal mortgage regulators say they are ending a much-criticized surcharge on refinances. And on Friday afternoon, refi rate were falling.
Some lenders have cut rates on 15-year fixed-rate loans to less than 2%, and suspended deals on 30-year refinances well below 3%. These measures could revive a refinancing boom that was in full swing earlier this year.
The Federal Housing Finance Agency in December imposed a 0.5% “adverse market fee” on mortgage refinances. When the agency announced it was waiving fees on loans that close on and after August 1, lenders quickly lowered their prices.
The move was captured in the rates clicked by Bankrate users. On Friday, the average refinancing rate was 2.52%, down 4 basis points from Thursday. Prior to the announcement, rates in general were falling, with the 30-year fixed rate mortgage to its lowest point since February.
Big players like United Wholesale Mortgage — the nation’s second-largest home loan originator — lowered their refi rates almost instantly on news of the FHFA move, says Jim Sahnger of C2 Financial Corp. in Jupiter, Florida.
“People are taking advantage of it,” Sahnger said. “I had several borrowers who advanced in the news.”
The fee of 0.5% of the amount of a refinance was paid by lenders rather than borrowers. In response, lenders raised refinance rates last year by about 12.5 basis points, or 0.125 percentage points.
Why Some Lenders Cut Rates So Quickly
Consumers are used to seeing prices and tariffs of all types rise quickly and fall slowly. In the case of the FHFA fee, this pattern did not hold.
The reversal was quick for several reasons. First, refi volume has lagged in recent months, even after lenders rallied for a wave of refinancing. And second, the rate cut essentially takes effect immediately, given the long lead time of the mortgage process.
“Most locked loans will now not be closed until after August 1,” says Rocke Andrews, broker-owner of Lending Arizona in Tucson.
There is also the reality that many lenders are competing for your business. “Let’s be honest – it’s an incredibly competitive market right now,” said Robert Humann, chief revenue officer at Credible.com.
What the end of refinance fees means for borrowers
Borrowers did not pay fees directly. Instead, lenders typically hiked rates by an eighth of a percentage point, or about $20 a month on a $300,000 loan.
“Santa Claus has arrived early for homeowners looking to refinance their mortgagessays Greg McBride, CFA, chief financial analyst at Bankrate.
The FHFA oversees Fannie Mae and Freddie Mac, the mortgage giants that buy about two-thirds of all US home loans. Fearing a repeat of the Great Recession foreclosures crisis, the agency imposed the charges during the darkest days of the coronavirus pandemic. However, the FHFA’s decision drew intense criticism. As a compromise, the FHFA delayed the fee for a few months and said it would not apply to loans under $125,000.
As regulators braced for a housing crash, the opposite happened: home prices soared and foreclosures plummeted to record lows.
The charges were defended by Mark Calabria, who was appointed head of the FHFA under President Donald Trump. Calabria argued that the mortgage giants were “not close to safety and solidity.”
“In their current state, Fannie and Freddie will land in a severe real estate recession,” Calabria said last year. Calabria is no longer in control.
McBride welcomed the end of the refi fee.
“The justification for the fee when it was put on the market was that it was necessary to pay the costs of abstention and pandemic-related payment relief incurred by Fannie Mae and Freddie Mac,” McBride says. “But the homeowners being punished were those who weren’t high risk, didn’t need forbearance or payment relief, and were actually reducing their risk in the mortgage finance market by lowering their rates and monthly payments. It never passed the smell test to begin with.
