Investor · Whitefish, MT · Member since 2015 · 65 posts · 18 votes
This new Fannie and Freddie fee of 1/2 of 1% of the loan value is going to be a bummer for BRRRR. However, this will have a far greater oppressive effect on low-income families. If you feel this new fee is out of line call your congressperson.
The 0.5% fee is on FNMA/FMAC re-fis. Non-agency lenders are also about 100 bps high on re-fis vs originations.
Just the nature of portfolio paper. On a re-fi its more than just paying the previous loan - You need to replace it with something that yields the same amount.
With replacement yields being lower than a few years ago, you'll need more money to buy the replacement instrument.
Fannie and Freddie say the extra fee makes up for the added risk they are taking on because of "adverse market" conditions. Unfortunately, what that says to me is that they do not have confidence in the underwriting ability of the lenders, which in turn means the end consumer gets to pay for this lack of confidence or the lender's inability to properly underwrite. Lastly, there doesn't seem to be any language of a sunset of this fee when market conditions improve.
I agree with all points mentioned. This will make refi's more costly. It will impact lower to lower-middle class borrowers the worst (who are already hardest hit by liquidity issues during this pandemic). The fact there is not a sunset to this is troublesome (the stakeholders of GSEs are benefiting here for sure). The fact that it's taking sweeping affect 9/1 and not 10/1 puts a huge strain on banks that have already locked loans. Why not give the banks time to close these loans in September and then implement 10/1....
@Whitney Hutten I just completely the buy, rehab, and rent portion of my BRRRR. It's a single family home that will arv for under 100k. Do you think I should go to a commercial lender to cash out refi ASAP to avoid the fee?
Congrats on the BRR @Jake Silverman so far. Not sure you're going to be able to act fast enough though! I am going through refinancing our personal residence right now, and this fee is costing us a bit. We currently have 3.75% from our purchase almost exactly 12 months ago. I was hoping to get 3% while paying no points, but my loan officer told me I would have to be paying some points now because of this fee and that we wouldn't realistically be able to close before that deadline. I ended up with 3.125% with no points (just other "closing" costs).
On a 100k property, assuming you do 20% down, .5% of $80k is only $400. I know, money is money, but hopefully $400 isn't going to make or break the BRRRR!
@Jake Silverman This fee currently only affects GSEs like Fannie Mae and Freddie Mac so you should be fine with a commercial loan. It's the conventional lenders you will see this with. And also, if undwrote the project at 4.5%, rates dropped to 3.5% in 3 months, and now you have to pay 3.5% + .5% fee... as an investor, you are still coming out ahead. IMHO, this will greatly impact those who have very slim margins for down payments, less liquidity, and the lower-middle class.