Adverse Market Fee

I always chuckle when I hear people complain about the evils of capitalism. The narrative is that somehow we have this market based system that favors the wealthy with the odds stacked against the “little guy”. On one hand, I say true, the “system” is set up to favor those who already have capital, or more accurately large sums of it. However we are no longer in a free market based system. Endless intervention by the Fed, bailouts, fiscal largesse and insider manipulation make it more like a twisted form of fascism or at best, “crony capitalism”. One needs to look no further than the latest shenanigan in the form an “adverse market fee” imposed by Fannie Mae and Freddie Mac on lenders for refinances.

“Due to a 0.5% “adverse market” fee, effective Dec. 1 and imposed on lenders by mortgage backers Fannie Mae and Freddie Mac, many homeowners are expected to absorb at least some of the cost when they refinance (certain refis are exempt, including those for loan balances below $125,000).”

For a $280,000 mortgage, the 0.5% fee would mean your lender is an extra $1,400 when your loan is sold to Fannie or Freddie. The expectation is that the extra cost will be passed on to the borrower in the form of higher interest rates.

CNBC

Why do you ask? Well it is to socialize losses taken by the two large government lenders

The Federal Housing Finance Agency, which oversees Fannie and Freddie, said the fee is intended to offset a projected $6 billion in losses — largely related to loans in forbearance and, separately, the anticipated rate of default among mortgages backed by Fannie and Freddie as unemployment remains high and economic uncertainty persists.

CNBC

The new fee is set to start on Dec. 1st, however since it takes two months to complete the refi process from beginning to end, those shopping right now in early October will be affected. I asked my mortgage broker about this and he offered the following:

It is for all loans delivered to the Agencies after 12/01…so, yes, with post close audit, servicing set up, bundling of loans, it does take longer than two months.  And refinances right now are 45-60 days to process.

It is worth noting that this fee will only affect refis and not purchases. My conclusion is that this is a steaming pile of garbage and another example of the government, or pseudo government agencies, intervening in the open market to influence behavior or socialize losses. Good hunting out there if you are trying to refi. Just know you will not be getting the “natural market rate”.