Homeowners now face a new fee when refinancing

There is now a new refinancing fee in effect that may increase the interest rate. Homeowners will be listed if they cannot convince the lender to waive the fee.
The waiver comes as the 30-year fixed-rate mortgage rate hit a new low of 2.71%, marking its 14th record this year.
The Federal Housing Finance Agency, which oversees Freddie Mac and Fannie Mae, who back millions of mortgages, has imposed a 0.5% fee on lenders on new refinanced mortgages starting December 1. Loans less than $ 125,000 are altogether exempt from the fee.
Read more: Mortgage rates hit all-time lows: is it time for a refinance?
"Most applicants don't see the fee as a cost or item being billed to them," said Tony Grech, senior mortgage loan officer at Luxury Mortgage Corp, a mortgage lender. “The refinancing fee is more reflected in the interest rate than in the fees. For the average borrower, this equates to a higher rate of 0.125% to 0.25%. "
An eagle model decoration sits in the front yard of a home in West Liberty, Iowa, USA on January 30, 2020. (REUTERS / Ivan Alvarado)
Why is there a fee?
Under the CARES bill passed in March, homeowners suffering from coronavirus-related hardship could postpone their mortgage payments for 180 days and receive an additional 180 days of indulgence as needed.
Fannie Mae and Freddie Mac, the government agencies backing these home loans, have suffered more than $ 6 billion in losses related to the indulgence plans. To make up for this loss, the agencies put the 0.5% fee on new refinancing loans.
Read more: Here's the story of the 30 year fixed mortgage rate
"In my opinion, this is nothing more than a money robbery," said Scott Sheldon, branch manager at New American Funding, a mortgage lender. "And the government has been very methodical in adding that fee."
Mortgage data and analytics firm Black Knight reported that 2.76 million homeowners remain on active forbearance plans through Dec. 1, representing $ 561 billion in unpaid capital. However, that's a 5.3% decrease from the previous week.
According to Freddie Mac, the interest rate on the 30-year fixed-rate mortgage fell to 2.71%, the lowest level since 1971. (Chart: Freddie Mac)
What Can Borrowers Do?
Borrowers should speak to their lenders beforehand about the fee and ask if it can be lowered or waived altogether.
"On the other hand, many lenders - including us - have the option on a case-by-case basis to waive this fee anyway," said Sheldon. "It will depend on the lender whether they charge or eat the fee."
Borrowers can and should shop around to find the best deal with a lender willing to pay the fee.
Read More: Seeing Low Mortgage Rates: Should You Cash Out And Refinance?
Despite the new fee, homeowners are unlikely to be deterred from refinancing given historically low mortgage rates, and experts believe the refinancing boom will continue through 2021.
"We're in massive demand for refinancing right now," said Sheldon, whose Santa Rosa, California mortgage lender saw refinance volumes jump 74% year over year. "This fee doesn't deter new mortgage loan applications, and the government knows why they can collect that fee."
The Yahoo Money sister site Cashay has a weekly newsletter.
Dhara Singh is a reporter at Cashay and Yahoo Finance. Follow her on Twitter at @Dsinghx.
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