The Adverse Market Fee was a temporary 0.5% surcharge introduced during the COVID-19 pandemic on most conventional mortgage refinances backed by Fannie Mae and Freddie Mac. Implemented on December 1, 2020, the fee aimed to protect lenders against potential losses from increased default risk and mortgage forbearance programs. It applied to conventional refinances exceeding $125,000 but excluded government-backed loans (FHA, VA, USDA), new home purchase loans, and jumbo loans which are not backed by these agencies.
For example, on a $300,000 refinance, this fee would add $1,500 in costs. Borrowers could pay it upfront as part of closing costs or roll it into their loan balance, often resulting in a slightly higher interest rate. This fee was essentially an added risk premium reflecting economic uncertainty at the time.
The Federal Housing Finance Agency (FHFA), the regulator overseeing Fannie Mae and Freddie Mac, introduced the fee amidst fears of widespread mortgage defaults and a potential housing market downturn. However, the anticipated surge in defaults never materialized; housing prices soared and default rates remained low. Consequently, on August 1, 2021, the FHFA officially eliminated the fee to support refinancing affordability.
This episode highlights the dynamic nature of mortgage regulations and fees, especially during economic crises. Homeowners refinancing during that period were directly affected by this fee, which has since been removed and will not appear on current loan applications.
For more details on refinancing, see Mortgage Refinance and for related costs, check out Refinance Closing Costs.
Sources:
- FHFA Announcement on Adverse Market Fee Elimination
- NerdWallet Explanation
- Forbes Article on Fee Removal
For official guidance, visit the FHFA website.
