Freddie Mac Guidelines: Credit Fees for Refi Possible Mortgages

What Are Credit Fees and When Do They Apply

Credit fees are specific charges that Fannie Mae requires on certain mortgage products, particularly Refi Possible mortgages. These fees represent additional costs beyond standard loan-level pricing adjustments that you might encounter with conventional loans.

Refi Possible is Fannie Mae's streamlined refinance program designed for borrowers who may not qualify for traditional refinancing options. The program targets homeowners who are current on their mortgage payments but have limited equity or other qualifying challenges.

Say you're refinancing through the Refi Possible program because your home's value has declined since you bought it, leaving you with little equity. The credit fee becomes part of your loan costs, calculated according to Fannie Mae's fee structure and added to your overall loan amount or paid at closing.

How Credit Fees Are Calculated

The specific calculation method for credit fees depends on various loan characteristics outlined in Exhibit 19 of the Fannie Mae Selling Guide. These characteristics typically include loan-to-value ratio, credit score, loan amount, and property type.

Your lender will reference this exhibit to determine the exact fee amount for your specific situation. The fee structure operates similarly to loan-level pricing adjustments but applies specifically to Refi Possible mortgages rather than conventional loans.

For example, a borrower with a 620 credit score and 95% loan-to-value ratio will face a different credit fee than someone with a 740 credit score and 80% loan-to-value ratio. The fee grid in Exhibit 19 provides the precise amounts based on these risk factors.

Payment and Collection Requirements

Credit fees must be collected according to the provisions in Chapter 6303 of the Fannie Mae Selling Guide [[6303]]. This chapter outlines the specific procedures lenders must follow when collecting these fees from borrowers.

The fees can typically be paid in one of several ways. You might pay the fee in cash at closing, roll it into your loan amount, or have it collected through other approved methods outlined in the guidelines.

Your lender will inform you of the credit fee amount early in the loan process, usually when you receive your Loan Estimate. This gives you time to decide how you want to handle the fee payment and factor it into your refinancing decision.

Documentation Requirements

Your lender must properly document the credit fee calculation and collection. This includes maintaining records that show how the fee was determined based on your loan characteristics and Exhibit 19 requirements.

The loan file should contain evidence that the correct fee was calculated and collected according to Fannie Mae guidelines. Your lender will also need to demonstrate compliance with the payment collection procedures outlined in Chapter 6303.

You should receive clear documentation showing the credit fee amount and how it was applied to your loan. This information appears on your Closing Disclosure and other loan documents you'll receive before closing.

Why Fannie Mae Requires These Fees

Credit fees serve as a risk management tool for Fannie Mae's Refi Possible program. Since this program serves borrowers who might not qualify for traditional refinancing, the fees help offset the additional risk associated with these loans.

The fee structure encourages responsible lending while still providing access to refinancing for borrowers with limited options. By charging fees based on risk characteristics like credit score and loan-to-value ratio, Fannie Mae can offer the program while managing potential losses.

These fees also help ensure that the Refi Possible program remains financially sustainable. Without appropriate risk-based pricing, the program might not be able to continue serving borrowers who need alternative refinancing options.

Common Issues and Complications

One frequent issue occurs when borrowers don't understand that credit fees are separate from other loan costs. You might see loan-level pricing adjustments on your Loan Estimate and assume those are the only additional fees, only to discover the credit fee later in the process.

Another complication arises when borrowers try to compare Refi Possible loans with conventional refinancing options. The credit fees make direct comparisons more complex, since conventional loans don't have these specific charges.

Some borrowers also struggle with the payment timing for credit fees. If you're planning to roll the fee into your loan amount, make sure your loan-to-value ratio can accommodate the additional amount without exceeding program limits.

Lenders sometimes make errors in calculating credit fees, particularly when loan characteristics change during underwriting. If your credit score improves or your property appraises higher than expected, the fee calculation might need adjustment.

Impact on Your Refinancing Decision

Credit fees add to your overall refinancing costs, so factor them into your break-even analysis. Calculate how long it will take for your monthly payment savings to offset the credit fee and other closing costs.

Consider whether the Refi Possible program with its credit fees still provides better value than other available options. Sometimes paying the credit fee makes sense if it's your only path to refinancing, even if the total costs are higher than ideal.

Remember that credit fees are typically based on your loan characteristics at the time of application. If your financial situation improves significantly during the loan process, discuss with your lender whether you might qualify for a different program without credit fees.

References

For the official guidelines, see 4302.8: Credit Fees in the Fannie Mae Selling Guide.