July 16, 2021

The Federal Housing Finance Agency announced that a pandemic-era program placing an additional fee on mortgage refinances will be discontinued beginning in August. Access to mortgages fell in June due to separate policies that limited availability of conventional loans. And consumer sentiment – particularly regarding larger purchases – fell in July as concerns about rising prices began to set in.

A short-lived additional fee on mortgage refinances is going away next month

• The Federal Housing Finance Agency implemented a 50-basis point fee on top of all mortgage refinances last year
• The agency decided to discontinue the policy on August 1st

Access to mortgage credit shrunk in June

• The MBA’s Mortgage Credit Availability Index fell 8.5% in June from May
• But applications for home purchase loans improved 8% in the week ending July 9th from the week prior

While retail spending grows, increased inflation perceptions is leading some consumers to hold off on larger purchases

• Just 30% of consumers believe it’s a good time to buy a home, according to the University of Michigan’s July Survey of Consumers
• Retail sales jumped 0.6% in June from May

So what? 

In August of last year, the Federal Housing Finance Agency announced the implementation of a fee that would add an extra 50 basis point (0.5 percentage point) fee to Fannie Mae or Freddie Mac loans that are being refinanced. The Adverse Market Refinance Fee program was intended to protect lenders from losses brought upon by the pandemic, but ultimately these increased costs appeared to be passed on to borrowers, making it more expensive and therefore difficult for a homeowner to refinance their mortgage. Now under new leadership, the FHFA decided this week to discontinue the policy, effective August 1, 2021, pointing to continued improvements in the health of the mortgage market. According to Black Knight, just 2.1% of all loans are in forbearance as of July 13 – down from nearly 5% earlier in the pandemic. Refinance rates have been strong throughout the pandemic, as mortgage rates fell to all-time lows and have barely nudged up since, but activity has slowed recently and is now sitting at a five-month low. The removal of the refinance fee should make it more financially feasible for households to alter their loan to a lower rate or tap into home equity they’ve accumulated, and ultimately result in more refinance activity in the months ahead. Mortgage rates fell on the news, dropping to their lowest point in more than a month.

The removal of the FHFA fee comes at an important time for the market, as a separate report released this week showed that mortgage credit became harder to access in June. The MBA’s Mortgage Credit Availability Index fell by 8.5% in June from May, indicating that mortgage lending standards became much tighter. Following the decline, the index has retreated to its lowest level since September 2020, erasing the incremental gains achieved over the last 8 months. Access to conventional mortgages fell significantly on the month, in large part due to a separate policy put in place by Fannie Mae earlier in the year which limits the number of loans associated with second homes and investment properties they can have in their portfolio. Limits on high loan-to-value refinance loans also contributed to the tightening of credit availability. Restrictions on lending standards are far tighter than they were before the global financial crisis and have helped to ensure that the quality of outstanding mortgages remains much higher than it was back then. But the increased tightening in June adds another hurdle for many would-be buyers to clear, at a time when the market for homebuyers is already extremely competitive. That said, a separate report this week showed that home shoppers are still finding ways to apply for loans. The MBA’s index of for-sale mortgage applications ticked up 8% in the week ending July 9 from a week prior – the strongest weekly improvement since November.

Consumer sentiment slipped in July to their lowest level in five months, and people’s evaluation of home buying conditions sank to their lowest point since the early 1980s. Having felt the effects of the global shortage on many key supplies and durable goods, consumers’ expectations for short-term inflation jumped to its highest point since 2008. According to the report, on average, people expect prices to rise by 4.8% in the next year, while expectations for the inflation rate over the next five to ten years remain softer at 2.9%. Consumers are spending at a strong rate as the economy continues to reopen, highlighted by a separate report released Friday that showed retail sales increased 0.6% in June from May. However, the University of Michigan consumer sentiment report suggests that the expectation of sharply rising prices has led many households to postpone larger household purchases and sparked a strong uptick in complaints about rising prices of vehicles and homes. Indeed, just 30% of all consumers believe home buying conditions are favorable – the smallest share since 1982.

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