By Jill Ralph. Mortgage buyers Fannie Mae and Freddie Mac have announced they will impose new rules on borrowers who want to refinance some mortgages. The new rules will bring extra fees for cash-out refinances -- instances in which homeowners take out an amount of cash that is more than they owe on the house. The cash can be used to pay off debts on other personal properties. Most jumbo-lenders charge extra for cash-out refinances.
The changes will broaden the range of what mortgages are considered cash-outs. The fee increase ranges from 0.25 points to 0.5 points, based on the loan-to-value ratio -- the percentage of the home's value being borrowed. A 0.5-point increase on a cash-out refinance of $200,000 would add an extra $1,000 to refinancing fees. Mortgage lenders say they don't expect the extra cost to dissuade people from financing. They do caution that the changes come at a time when homeowner refinance activity is beginning to ebb.
The new fees, in place for Freddie Mac, are slated to take effect April 1 for Fannie Mae. In 2003, cash-out refinances are expected to drop from numbers recorded in 2001 and 2002, but still remain high compared to the 1990s. Mortgage originations were at a record high in 2002. They are expected to decrease but remain strong in 2003.