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Dave Hershman[/caption]
Dave: I am not confused as to why they did it. They are calling it an adverse market fee and the extra capital is supposed to protect them from COVID-19-induced losses down the road. They implemented similar fees in the aftermath of the Great Recession. While there is an explanation, I do have major questions:
- Why refinances? There is no evidence that refinances are more risky than purchases. Are they trying to encourage consumers to purchase rather than refinance? I doubt that as well because there are a limited number of listings out there. To them, refinances are an easy target. But what they did not figure is that the extra cost may make many refinances become less than cost-effective, as many loan officers have noted.
- Why Sept. 1 as the initial effective date–changed subsequently to Dec. 1? Sept. 1 would have meant consumers already locked in will be subject to the fee and lenders couldn’t go back and charge them more. Thus, it would have become a tax on lenders--and a retroactive one as well.
While there are concerns about future defaults and losses, as the head of the FHFA testified before Congress, I am also speculating that Fannie and Freddie are trying to shore up their reserves so the government will let them go out of conservatorship. Basically, what he said to Congress, if you don’t want us to do this, then fund our anticipated losses. This would be a bailout.
If their reserves are lacking, our leaders many be reticent to finish this move, which has already been started. There have been concerns that the entities could not survive another foreclosure crisis down the road, and I have read at least one article about a study which came to this very conclusion.
As I said, while there are explanations, there are a lot of questions.
Dave Hershman is Senior VP of Sales of Weichert Financial and has published seven books, as well as hundreds of articles. He is also the founder of the OriginationPro Marketing System and Mortgage School. His site is www.OriginationPro.com and he can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..
