Low Mortgage Rates During Economic Crisis

Mortgage interest rates continue to be near the all-time low levels we have been experiencing since June of this year. In the first week of August, rates bottomed out, ending the run on 8/12/2020, marking a reprieve from the torrid pace set by the Federal Reserves’ continued commitment to suppressing interest rates, in order to stimulate consumer spending during what is arguably the worst economic crisis since the Great Depression.

Refinance Loan Points Increase

The current rise in mortgage rates has primarily affected refinances. This rise was directly caused by the Federal Housing Finance Agency (FHFA) — led by Mark Calabria. Calabria and the FHFA control the large institutional mortgage investors, Fannie Mae and Freddie Mac, with whom the bulk of mortgages are originated and sold.

On 8/12/2020, towards the end of the day, Fannie Mae and Freddie Mac announced that they were instituting a new “Adverse Market Refinance Fee.”

This fee is a 50-basis-points (0.5%) addition to mortgage refinances sold to Fannie and Freddie, starting Sept. 1, 2020. In response to this announcement, lenders immediately increased the one-time points by 0.5 on all refinance loans.

Estimates place the average cost of a refinanced mortgage to have increased by $1,400 from this fee hike.

I am seeing this refinance fee increasing the one-time cost to my borrowers by from between $500 – $3750 on a conventional refinance that conforms to Fannie and Freddie guidelines and loan limits.

Incidentally, these transactions make up 90% of my current loan volume.

Refinance Loan Rates Increase

The FHFA refinance fee also has sparked a reaction by the market, translating into an increase in mortgage rates for refinances of between .125% and .375% — depending on the loan product selected and the combination of borrower profile and property statistics. This means that in addition to the one-time cost being implemented by Mark Calabria and the FHFA, the current mortgage rate is now higher by an average of roughly .25% across the board.

The reason for the sudden addition of a fee to refinances is obvious: We are in the middle of the largest refinance run in our country’s history, with rates at the all-time low; so raising the cost to refinance by a few points per loan is an easy way to generate huge profits.

Profiting from the Coronavirus Crisis

Also, this fee hike likely has to do with the Government Sponsored Enterprises (GSE) Fannie Mae and Freddie Mac moving closer to becoming private corporations again, and no longer under government conservatorship — a protective oversight strategy which was put in place during the Great Recession of 2008 to keep the GSEs from failing.

Calabria seems to be moving full steam ahead with privatizing the GSEs and not letting the Coronavirus slow him down. The capital requirements the GSEs need to hold seem to be north of $200 Billion.

Calabria and the FHFA appear to be taking advantage of the current refinance boom to help them get to the capital requirements needed to privatize and get out from under government control.

This goal and the means to achieve it seem contrary to the Federal Reserves’ intentions of suppressing interest rates and keep stimulating the economy — while we get out of this economic depression that was created by our government’s flawed response to the pandemic.

Somehow, I am not surprised; considering that Calabria was economic advisor to current Vice President Mike Pence. Profiting from the misery of our nation seems to be something our government is good at facilitating in the current administration.

Home Purchases Still on the Rise

In the grand scheme of things, the markets will recover from this refinance fee increase if the Fed continues to work to suppress interest rates. Purchase transactions are not affected with home purchases on the rise, also due to the historically low rates.

25 Weeks Nonstop!

Frankly, I am happy to get the slight reprieve. At the time I am writing this, I have had only three days off in 25 weeks straight of 16-hour days of nonstop loan processing.

Thank you again for your continued patronage, support, and patience during this unprecedented time.

Wishing you and your loved ones good health and peace.

Yours,
Vic

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