The mortgage giants Fannie Mae and Freddie Mac are raising fees for lenders on mortgage refinancing, which will lead to a rise in consumer costs. 

The Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Association (FHLMC), more commonly known as Fannie Mae and Freddie Mac, buy loans from lenders, then package them into securities and sell those securities to investors. If a loan defaults, the associations guarantee the principal and interest on the loans. 

Although both associations have recently been highly profitable with a combined second-quarter gain of $4.3 billion,  Fannie Mae and Freddie Mac are raising fees for lenders on all mortgage refinances. 

Beginning in December, 0.5% of the loan amount will be added to consumer costs. On average this cost will be an additional $1400″ to “For a $500,000 refinance, as an example, the fee would be $2,500. The new fee will apply essentially to any refinance that has not already been processed.

The associations claim that the purpose of the rising fees is to protect against additional risks brought on by the pandemic. Fannie Mae stated in a letter to lenders that it was due to “market and economic uncertainty resulting in higher risk and costs.”

Another reason for raising fees could be that the Federal Housing Finance Agency (FHFA) plans to move both associations out of their 11-year tenure under government conservatorship. According to the FHFA, the associations were put in conservatorship “to preserve and conserve their assets and property, and restore them to a sound financial condition so they can continue to fulfill their statutory mission of promoting liquidity and efficiency in the nation’s housing finance markets.”

In essence, the conservatorship helped stabilize and maintain business operations at both Fannie Mae and Freddie Mac. Without the conservatorship, both associations will need to raise a lot of money to keep up operations as normal.

One reason the FHFA is moving the associations out of conservatorship could be that they are concerned about both institutions experiencing major losses when mortgage bailout programs end and borrowers have to start making payments again.

4 million borrowers are in government or private mortgage forbearance programs, with their monthly payments being delayed for up to a year.

The FHFA has received considerable backlash for its decision to move the associations out of conservatorship. Many see the agency’s actions as acting directly against the Federal Reserve’s work to help the housing and mortgaging markets. 

Currently, the Federal Reserve buys $40 billion in mortgage-backed securities per month in an attempt to support the economy. The securities help reduce financing costs for mortgage borrowers. 

Along with the FHFA receiving backlash, the rising prices of refinancing are also getting negative reactions. The majority of the mortgage industry believes that the price uptick is bad for homeowners, the mortgage industry, and the economy in general.