New Tax on Mortgage Refinances

I’ve got some good news, and I’ve got some bad news. Here’s the bad news first.

Last week, the Federal Housing Finance Agency (FHFA) announced a surprise fee on all new refinance transactions sold to Fannie Mae and Freddie Mac, making up approximately two-thirds of all loans. The cost was assessed regardless of the bank or mortgage company you choose to work with and will increase the interest rate that you had been expecting and had been available.  

This sudden move came as a surprise both in the imposition of the fee and in making the fee effective almost immediately. Historically, they allowed 60-90 days before the new pricing went into effect, to enable lenders reasonable time to close their rate lock pipelines.

Why are they introducing a new fee?

Two reasons. First, both Fannie and Freddie are concerned about the uncertainty surrounding future mortgage defaults and the increased costs they incur. Secondly, they are worried about how quickly their current mortgages are prepaying due to the unprecedented wave of refinances. When a loan refinances, the prior loan comes out of the security, which creates losses to the investor who owns that mortgage, so by raising the cost to refinance will slow down how past loans are paying off.

Although Fannie nor Freddie outwardly stated this, many in the industry think that a third reason drove this announcement. The “refinance tax” will allow both enterprises to build up a capital base for their future release from conservatorship and back to becoming private entities – This is pure capitalism ladies and gentleman. 

 What is the impact to borrowers?

  1. Across the country, lenders are adding these new refinance fees into rate sheets effective immediately for all conventional conforming refinances.
  2. These fees are on top of all other fees already charged by Fannie and Freddie.

What happens next?

The mortgage industry is united in its disappointment with the announcements, specifically with the break from all past precedent of providing a reasonable advance notice of the effective date. The probability of FHFA, Fannie Mae or Freddie Mac revising their announcements with a different effective date is probably low.  

Now for some good news… 

Interest Rates are still at extraordinarily low levels, and refinancing may be a smart financial move, which can save you money every month or reduce the number of years remaining on your mortgage. You may also be able to consolidate your debts to save even more money.

The True Cost of Waiting to Buy a Home

I know shopping for a home today is hard work and very frustrating at times. Inventory is low, and demand is high – It may take many offers, and a few tension-filled bidding sessions, before you land that home. Buyers can quickly get discouraged and say, “I am tired of this. I am just going sign a new rental lease instead and try this again in 6 months to a year”. 

Here’s the thing: you can take some time off, but the market isn’t taking time off, even with COVID. For example, in Sacramento County, the forecasted appreciation is 4.22% in just the next six months; let’s quantify that. A home worth $442,000 today would be worth $18,637 more in 6 months. Being careful with this prediction, even if we cut this estimate of appreciation in half to 2.4%, waiting would require you to get a bigger loan, and pay more every month, or put more money down.

I think the effects of COVID will continue to ripple through our economy in ways we can’t even imagine. If home prices do dip temporarily, the economic value to a person of owning their own home, and taking advantage of today’s super-low 30-year fixed rates, will put them in a much healthier long term financial position than choosing to rent for the next several years. The key is for people to buy homes that they enjoy living in, with a long term outlook. A short term paper loss is nothing compared to the long term economic benefits a homeowner would receive.  

And what about interest rates? Should you wait until rates go down further? No, the monthly savings with a lower rate are nice but small compared to the missed appreciation and amortization. It could take longer for the incremental savings of a lower rate in the future to make up for the money lost by waiting. Should rates drop significantly, you can always refinance in the future. Stick with it, keep shopping, and you will find something! 

 And remember, there’s no guarantee that rates head even lower. It’s essential to weigh the individual options for you, and I’m here to help you do that.

Don’t Get Fooled By Tricky Real Estate Terms

Understanding Real Estate TermsWhen looking to buy or sell Sacramento real estate, confusing terminology can leave you feeling somewhat uneasy. From a multitude of numbers to marketing jargon, property listings can give you an overwhelming amount of information — and it’s hard to know what’s important. Continue reading “Don’t Get Fooled By Tricky Real Estate Terms”

Should I Buy A Foreclosured Property?

Green MortgageBuying a foreclosed property in Sacramento and the surrounding area can be different than buying other types of real estate. And if you are a first time home buyer, this may not be a road you want to  travel down.

In many cases you will be able to get a fantastic deal on a home, but you will need to go through quite a bit of work and negotiation. Here are some of the basics facts from a local agent with a ton of experience in the area of Foreclosed property – click here for video Continue reading “Should I Buy A Foreclosured Property?”