About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline
LOG IN
LOG IN

1 1 (August 25, 2020)

handle is hein.crs/govebcu0001 and id is 1 raw text is: Congressional a Research Service informing the egisI tive debate since 1914___________________ The GSEs' Adverse Market Refinance Fee August 25, 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. FHFA has 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 FHFA has 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 as of September 1, 2020. The fee would also apply to Fannie Mae's limited cash-out refinance and Freddie Mac's no cash-out refinance products, which cap the amount of home equity borrowers can withdraw, typically to roll some or all of the closing costs into their mortgages. (For both GSEs, single-close construction-to-permanent refinances would be exempt from the fee.) 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. The additional revenue collected by the GSEs could be used for multiple purposes. 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 even though they technically are not in default. 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 borrowers affected by COVID-19. The revenue generated by the 0.5% fee could offset these cash flow pressures facing the GSEs and allow them to continue meeting their payment obligations without experiencing severe cash flow shortfalls. Given that the GSEs have received funds from Treasury while under conservatorship, the 0.5% fee might reduce or abate the need for additional support. If fewer forbearances and defaults than anticipated occur such that cash flow disruptions are averted, the additional revenues could also be used to accumulate more capital reserves to facilitate the GSEs' exit from conservatorship sooner rather than later. Predicting how much revenue the fee would generate for the GSEs is difficult Congressional Research Service https://crsreports.congress.gov IN11489 CRS INSIGHT Prepared for Members and Committees of Congress

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Short-term subscription options include 24 hours, 48 hours, or 1 week to HeinOnline.

Purchase Access

Already a HeinOnline Subscriber?

Log In

profiles profiles most