Mortgage brokers ask FHFA to rethink cash-out refinance price hike

The National Association of Mortgage Brokers has asked the Federal Housing Finance Agency to change its plan to raise the price of certain cash-out refinances in February of next year.

Although the cash-out hikes offset some price breaks that help make some loans used by first-time buyers more affordable, they put pre-existing borrowers at a disadvantage, the group noted in a letter to FHFA Director Sandra Thompson.

“I know there’s a balance they have to strike on how they do things, but putting something on one group of individuals in order to balance it on the other isn’t the best way in NAMB’s opinion to get this done,” Ernest Jones Jr., president of the group, said in an interview.

The association’s concern is that pricing adjustment “will negatively impact current homeowners,” Jones said in the letter to the FHFA. Cash-out refinance borrowers frequently use the money to address a financial hardship or an essential life need, Jones said.

“Most of the time, they’re taking it out to pay off debt, to fund education for a child or an emergency situation,” said Jones.

The NAMB has been concerned that the pricing increase could be as high as 75 basis points in some cases, but Jones noted that a lot of variables go into pricing a loan, such as credit scores and loan-to-value ratios.

The agency said in a statement that it expects the hikes — which are part of a larger recalibration of guarantee fee pricing and returns it is undergoing as part of its regulatory capital framework — to be far lower on average. 

“With respect to cash-out refinance loans, in some instances, certain LTV/credit score combinations warranted a higher fee while others warranted a lower fee as return thresholds were already being met,” an FHFA spokesperson said in an emailed statement. “On average, the recalibrated cash-out refinance fees will lead to small g-fee increases of 5-6 [basis points] and are expected to lead to higher overall revenues – even with small market share loss as a result of higher fees.”

In its letter, the mortgage broker group also showed concern that the move came on top of a separate price hike the agency added earlier this year that affects existing homeowners. That increase applied to high-balance loans and mortgages taken out on second homes.

“You can’t make the assumption that everybody who wants to buy a second home is in a high socioeconomic range,” Jones said, noting that retirees with relatively low incomes could be in this category, and average people may have high priced homes in some areas.

Both changes are part of the FHFA’s ongoing review of the prices and related fees government-sponsored enterprises charge for loan purchases. As such, pricing is not set in stone, but the agency does need to “ensure the enterprises are positioned to fill their countercyclical role throughout the economic cycle,” the spokesperson said.

“Pricing is a critical tool in this regard,” the agency added in its statement. “FHFA will continue to closely monitor mortgage market conditions and assess the impacts of these pricing changes once they go into effect.”