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1 1 (August 28, 2020)

handle is hein.crs/govdbmw0001 and id is 1 raw text is: Gongesssoa Research Service The GSEs' Adverse Market Refinance Fee Updated August 28, 2020 Fannie Mae and Freddie Mac, two government-sponsored enterprises (GSEs), were chartered by Congress to provide liquidity for both the single- and multi-family mortgage markets. In the years following the housing and mortgage market turmoil beginning in 2007, the GSEs experienced financial difficulty. On September 6, 2008, the Federal Housing Financial Agency (FHFA), the GSE's primary regulator, took control of them from their stockholders and management in a process known as conservatorship. FHFAhas since implemented various initiatives to improve the GSEs' financial conditions, and it has recently prioritized their exit from conservatorship. Specifically, the GSEs are now being allowed to accumulate capital reserves to buffer against mortgage default risks, and FHFAhas re-- proposed a rule to establish a capitalization framework that would be in place following their return to stockholder control. On August 12, 2020, both Fannie Mae and Freddie Mac announced an adverse market refinance fee of 50 basis points (0.5%) on the cash-out refinance loans purchased by the GSEs. Although the fee was initially planned to go into effect on September 1, 2020, FHFAannounced on August 25, 2020, that it has been delayed to December 1, 2020, following concerns-some announced and some expressed directly to FHFA-by some Member of Congress. The fee would also apply to Fannie Mae's limited cash-out refinance and Freddie Mac's no cash-out refinance products, whichcap the amount of home equity borrowem can withdraw, typically to roll some or all of the closing costs into their mortgages. (If, for example, a lender sold a refinanced mortgage of $300,000 to a GSE, the lender would be charged a fee of 0.5%, or $1,500.) Per the August 25, 2020, announcement by FHFA, the GSEs are to exempt refinance loans with loan balances below $125,000. Approximately half of these mortgages would be comprised of lower-income borrowers at or below 80% of area median income. Furthermore, the GSEs'products that target creditworthy low-income borrowers would also be exempt. FHFA has stated that the additional revenue collected by the GSEs would be used to offset projected losses related to Coronavirus Disease 2019 (COVID-19) of at least $6 billion. In general, the GSEs guarantee investors in their mortgage-backed securities (MBSs) timely repayment of principal and interest generated from the underlying mortgages linked to the MBSs. By granting forbearance (i.e., deferred mortgage payments) to borrowers adversely affected by the Coronavirus Disease 2019 (COVID-19) pandemic, some mortgages are not generating cash flows. For this reason, the GSEs may be experiencing challenges to their cash flows by attempting to forward payments to investors that hold their MBSs while simultaneously providing forbearance to borrowem affected by COVID-19. The revenue generated by the Congressional Research Service https://crsreports.congress.gov INI 1489 CRS INSIGHT Prepared for Membersand C o m n ifteeso f C o ng ress ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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