FHFA raises cost of refinance, interest rates remain historically low - Movement Mortgage Blog

The housing industry was dealt a big change this week as the Federal Housing Finance Authority decided to raise prices on refinance loans sold to Fannie Mae and Freddie Mac. The group announced the institution of an Adverse Market Refinance Fee. The fee is a 50 basis point added cost for all conventional loan refinances sold to Fannie Mae and Freddie Mac on Sept. 1 and beyond. A bulletin released by Freddie Mac indicated the reasoning is, “a result of risk management and loss forecasting precipitated by COVID-19 related economic and market uncertainty.”

What does that mean for borrowers? Basis points equal one hundredth of one percent, or 0.01%. When you multiply that 0.01% by 50 (the amount for this fee), you get 0.5%. So if you are refinancing a home that’s $300,000, this fee would equal 0.5% of the cost, or $1,500. Since this is a government mandate, lenders are obligated to make this change for refinance customers. This change does not apply to purchases.

The overarching positive, however, is that interest rates are staying extremely low. This week’s Freddie Mac 30-year fixed-rate mortgage average came in at 2.96%. Last year, the average was 3.6% at this time. In 2018? The average was 4.53%. The lower interest rates give people more purchasing power, which is good because home prices continue to creep up. The latest report from the National Association of Realtors showed an increase in price across 96 of the markets surveyed. 

Meanwhile, the waiting game between Wall Street and Capitol Hill continues as the markets remained relatively flat this week. Better-than-expected unemployment numbers helped keep the markets up, along with continued strong performances by FAANG stocks (Facebook, Amazon, Alphabet, Netflix, Google). The 10-year Treasury note yield rose to 0.7% in early Friday trading. That’s its highest level in a few weeks. Just last week we were watching for the 10-year to drop to 0.5%, which would have been its lowest level since March. 

Initial unemployment claims were a bit of a bright spot this week as fewer than 1 million Americans filed initial claims. The 963,000 claims were the first time we had less than 1 million since the pandemic hit the economy in full force. The Labor Department’s report also noted that continuing claims were down significantly. However, the total number still represents more than 15.5 million Americans applying for at least two straight weeks of unemployment insurance. 

OF NOTE:

  • FAANG stocks are worth $7.6 trillion combined, making up more than 20% of the S&P 500 value.
  • Congress says it will likely not vote on new coronavirus stimulus plans until Sept. 14.
  • President Trump suggested four executive actions, including unemployment assistance, a continued ban on evictions, a payroll tax deferral and an extension of student loan assistance. Of those four, only the student loan portion would be able to be enacted without Congressional approval and wouldn’t require state or private sector buy-in.
  • The student loan request directs the Education Department to extend the provision in the CARES Act through the end of the year. Currently, those with student loans can defer payments and won’t accrue interest through Sept. 30.
  • The $600 extra unemployment payment ended on July 31. That date also marked the expiration of the expanded unemployment insurance which allowed for self-employed people and independent contractors to collect unemployment benefits.
  • The 10-year Treasury note yield rose to 0.7%.
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Movement Staff

The Market Update is a weekly commentary compiled by a group of Movement Mortgage capital markets analysts with decades of combined expertise in the financial field. Movement's staff helps take complicated economic topics and turn them into a useful, easy to understand analysis to help you make the best decisions for your financial future.