A Tax on People Trying to Save Money

August 17, 2020

New brokers sometimes wonder why companies like Orion that specialize in wholesale business add a margin into our pricing. A profit margin helps increase our net worth so that we can offer more products to our brokers through improved relationships with a wide variety of Agency products, improved turn times through better warehouse bank relationships, and more flexibility in pricing for our brokers.

Unfortunately in the middle of last week the entire industry was stung by the Federal Housing Finance Agency’s decision to worsen its price for refinancing through Freddie Mac and Fannie Mae by .5 in price. Given underwriting turn times, most of conventional conforming refi pipelines will suffer a .5 hit, which by all indications is coming out of Orion’s pocket, not the broker’s nor their client’s.

Brokers are accustomed to explaining loan level price adjustments, or LLPAs, to their clients. Depending on the investor there can be hits, or improvements, based on loan-to-value, credit score, type of property, type of transaction, and a few other factors. We’ve seen price hits for cash out refinances. Now the GSEs (Government Sponsored Enterprises) will charge lenders an additional fifty-basis points (0.50%, or $500 per $100,000) for all refinance transactions effective for all loans purchased after September 1, 2020. So a $500,000 refinance will cost an additional $2500 due to this "adverse market fee" to recoup losses in revenue by the GSEs due to early mortgage payoffs due to the refinancing boom and missed payments due to forbearances issued under regulations from the CARE Act. On a $500,000 mortgage the additional fee for refinances is approximately $70 per month, or $840 per year, that borrowers are paying.

Orion has always prided itself on working with brokers on extending rate lock deadlines, and even floating down rates on many loan applications. Looking forward it is unlikely rate locks will be extending without costs to consumer and/or originators. Typically, adjustments to LLPAs are announced several months in advance to give lenders and brokers notice so they can properly price loans for homebuyers and homeowners looking for purchase or refinance mortgages. The September 1st date to impose the fee is essentially a retroactive tax on lenders who have committed to purchase refinance mortgages from originators are specific rates and prices, and now find 0.50% of their pipeline revenue being confiscated by the GSEs. Orion’s hands are tied, as are every lender’s.

The Treasury Department and the Federal Reserve are spending trillions of dollars to assist families hard hit by the shutdown of the economy due to the pandemic. The FHFA’s decision flies in the face of this. Orion is encouraging our brokers and their clients to send emails to their representatives in Washington DC to repeal the FHFA’s move. Here are convenient links: https://www.senate.gov/senators/How_to_correspond_senators.htm and https://www.house.gov/representatives/find-your-representative.

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