Calabria Defends Adverse Market Fee

Federal Housing Finance Agency Director Mark Calabria on Wednesday defended his agency’s much maligned “adverse market fee” that is designed to help cover losses at Fannie Mae and Freddie Mac as a result of the coronavirus pandemic.

“Conservative estimates price COVID-19 related costs for the Enterprises at roughly $6 billion … (and) $4 billion is from expected loan losses due to projected forbearance defaults,” Calabria testified before the House Committee on Financial Services. “The expected losses associated with the foreclosure moratorium amount to at least $1 billion. Other forbearance-related expenses and fees, such as the $500 fee the Enterprises pay to servicers for loss mitigation, account for another $1 billion.”

The fee on refinances – which drew criticism from members of Congress, industry groups and housing advocates – is designed to protect Fannie and Freddie from risk associated with the pandemic. It charges 0.5 percent of the loan amount to the borrower, or nearly $1,500 on the typical mortgage in the United States. It was scheduled to take effect September 1 but was delayed until December 1.

Last month, FHFA also announced the fee will not apply to refinances of loans below $125,000. Calabria noted that the fee applies only to “refinance mortgages and will not impact new purchase mortgages, including first-time homebuyers – a key element FHFA required of the Enterprises.”

“The losses this fee covers are the result of policies that have helped millions of Americans stay safe in their homes during a global pandemic,” Calabria said. “Although Congress has not provided any funding to offset the costs of these policies, the Enterprises’ congressional charters require that expenses must be recovered via income.”