Mortgage Finance Giants to Charge More for Refinancing
The cost of refinancing a mortgage is about to go up and it has nothing to do with the Federal Reserve.
Even as the county’s monetary regulators are keeping interest rates at record lows, two of the nation’s biggest mortgage finance firms said that they would start charging an additional fee on most home loan refinancings. The 0.5 percent fee, announced on Wednesday by Fannie Mae and Freddie Mac, will mean that the average homeowner will spend an additional $1,400 to refinance a mortgage.
Fannie, Freddie and their regulator, the Federal Housing Finance Agency, are justifying the new fee as a prudent measure to deal with anticipated losses from the pandemic. Also, because the added costs for a borrower can be spread out over the life of a mortgage, it would add only a few dollars a month to the average homeowner’s bill.
Consumer advocates and banking officials denounced the move as an unfair tax on homeowners who are trying to reduce their mortgage bills to free up money for new spending, which the ailing economy could use.
“It is an indefensible tax on consumers,” said Robert Broeksmit, chief executive of the Mortgage Bankers Association, an industry trade group. “One arm of the government is saying it wants credit to be cheap and another arm is saying it will grab it.”
Fannie and Freddie requested and were granted “permission to place an adverse market fee on mortgage refinance acquisitions beginning September 1, 2020 until otherwise directed,” the F.H.F.A. said that in a statement.
Fannie and Freddie, which are sponsored by the government, do not write mortgages. Instead, they buy mortgages from banks and repackage them into mortgage-backed securities that are guaranteed against default. The guarantee allows banks to maintain relatively low rates on such mortgages, the typical size of which is $280,000.
Since the pandemic started, millions of homeowners with mortgages backed by Fannie or Freddie have sought to defer their payments by a year. In April, some in the mortgage industry had predicted that as many as 20 percent of all such borrowers could seek such deferrals, but the number has been lower than expected — one possible reason for the higher refinancing fee. The M.B.A. said that 5.2 percent of mortgages backed by Fannie and Freddie were in forbearance, down from just over 6 percent in recent weeks.
Also in April, the F.H.F.A. had moved to provide long-term relief for the mortgage industry, concerned that a wave of loan payment deferrals would strain financial firms that service loans for investors in mortgage-backed securities. The housing regulator said at the time that mortgage firms had to make just four months of cash payouts to bond investors on mortgages that homeowners have stopped paying. After that period, Fannie and Freddie would assume those obligations, for up to eight more months if necessary.
The new charge on mortgage refinance fees roughly coincides with the start of that commitment by Fannie and Freddie.
Two top White House economic advisers provided starkly different views about the U.S. economy on Thursday, with the acting head of the Council of Economic Advisers warning the recovery will be bumpy and gradual without more fiscal help and President Trump’s top economic adviser saying a strong rebound is already underway.
The comments came as the White House’s Council of Economic Advisers released a report on the impact of the $2.2 trillion relief legislation that Congress passed in March and as lawmakers are struggling to agree on an additional package of measures.
“I think that very substantial headwinds remain,” said Tyler Goodspeed, the acting chairman of the Council of Economic Advisers. “What is going to be absolutely essential for a continued economic recovery is a continued recovery in the U.S. labor market.”
In terms of regaining the tens of millions of jobs that have been lost this year, Mr. Goodspeed said, “It remains the case that we have a ways to go.”
Larry Kudlow, director of the National Economic Council, said “the economy is doing well,” and that “in general, the jobs story is very good — we’ve had three blockbuster months.” Mr. Kudlow was speaking at the 2020 Washington Conference on the Americas.
Mr. Kudlow acknowledged that the economy was “not out of the woods yet” but he presented a far more sanguine view of the country’s ability to bounce back from the virus-induced recession — even absent more federal help.
“There is clearly a recovery going on, and with demand rising and inventories bare, I think it’s a self-sustaining recovery,” he said. “We’ve come a long way on the virus, in the past four to five months.”
But much of that progress stems from the $2.2 trillion in federal aid that lawmakers approved in March to help support workers and businesses affected by the pandemic. Much of that help has been exhausted, including an additional $600 per week in unemployment benefits that was lifting consumer spending.
The number of Americans filing for state unemployment benefits fell below one million last week for the first time since March. But layoffs remain exceptionally high by historical standards, even as the pace of rehiring has slowed.
The Labor Department reported on Thursday that 963,000 people last week filed first-time claims for benefits under regular state unemployment programs. Another 489,000 applied under the federal Pandemic Unemployment Assistance program, which covers independent contractors, self-employed workers and others who don’t qualify for regular state unemployment insurance.
Initial weekly unemployment claims,
both regular and those under the Pandemic Unemployment Assistance program
Regular claims fell under one million last week for the first time since mid-March
Initial weekly unemployment claims, both regular and those under the Pandemic Unemployment Assistance program
Regular claims fell under
one million last week for the
first time since mid-March
The number for state claims is seasonally adjusted; the figure for the federal program is not.
Unemployment filings have fallen sharply since late March, when nearly 6.9 million Americans applied for benefits in a single week. But filings still dwarf those in any previous recession: Before the coronavirus pandemic, the worst week on record was in 1982, when 695,000 people submitted claims.
“Even though we’re exiting the worst of the current crisis, we’re still above the worst of the Great Recession,” said Daniel Zhao, senior economist for the career site Glassdoor. Still, he said, it is encouraging to see unemployment filings dropping, especially after progress appeared to stall earlier this summer.
Unlike the temporary layoffs and furloughs that dominated in the first weeks of the crisis, most of the new job losses are likely to be permanent.
“It’s even more frightening now,” said Nick Bunker, economic research director for North America at the Indeed Hiring Lab. “There’s no silver lining of quick recalls like the higher levels that we saw back in March.”
Even as layoffs have slowed, the broader economic recovery has lost momentum. Employers brought back 1.8 million jobs in July, the Labor Department reported last week, well below the 4.8 million in June. More timely data from private-sector sources suggests that the slowdown has continued in August, and economists warn that it could worsen now that key federal programs to help households and businesses weather the pandemic have expired.
Even as some parts of the economy have reopened, people in industries particularly vulnerable to the pandemic see little chance of getting back to work anytime soon.
Amy Griffin is a theater actor and director who has appeared on Broadway and in regional productions across the country. But when the pandemic hit, the theater industry shut down, and it shows no sign of reopening.
“It’s pretty terrifying for me and for so many people because it’s just completely gone and you have no idea when it’ll come back,” said Ms. Griffin, who lives in Nyack, N.Y. “You just don’t know when you’re going to return to work in any capacity.”
Ms. Griffin is fortunate — her husband is a college professor and earns enough to cover their basic expenses. But the loss of income has been painful both financially and psychologically for her, especially now that the $600-a-week federal supplement has ended.
Ms. Griffin dismisses the idea that the supplement was discouraging people from working. She wants to work, she said. There simply aren’t any jobs in her industry.
“I feel like I’m going to be competing with Tony Award-winning directors to direct a middle-school play,” she said. “I would give anything to be able to go back to work. When I get to go back to work, it will be the best day of my life.”
Stocks fell on Thursday, as investors weighed new data on unemployment claims and the dimming prospects for a spending deal in Washington that would help many of the newly jobless in the United States.
The S&P 500 dropped less than half a percent, giving up earlier gains. Shares in Europe were also lower.
The trading on Thursday followed a report from the Labor Department that showed that 963,000 people filed new claims for state unemployment benefits last week. That’s the first time since March that filings have dipped below one million, but still staggeringly high.
With millions of Americans unemployed and stimulus benefits now ended, investors are closely watching Washington for signs of how negotiations over a new federal aid bill are playing out. Democrats are pushing for at least $2 trillion in spending, but Republicans have objected to that price tag, with some lawmakers and White House officials saying the economy is beginning to recover and doesn’t need that level of support and others saying that the United States cannot afford to keep piling on debt.
Those positions could further harden given the slight improvement in weekly jobless claims. On Wednesday, the Treasury Department said the budget deficit had reached historic highs of $2.8 trillion, in large part because of spending from the first $2.2 trillion pandemic package that lawmakers approved in March, and some Republicans in Washington have cited the ballooning deficit as a reason to halt further spending.
But economists warn it is too early to withdraw aid, especially given the virus has not abated and the pace of rehiring has slowed. Millions of Americans remain out of work and much of the spending power from the last stimulus package has run out, including an extra $600 per week in unemployment aid.
“It remains quite stunning that Congress has yet to agree on a fresh round of relief legislation with so many Americans hurting financially,” said Mark Hamrick, senior economist at Bankrate.com.“That focus should not ease because of slight improvement in still extremely elevated new jobless claims.”
When millions of people lost their jobs in a matter of days last spring, the deluge of unemployment filings overwhelmed state benefits offices. Five months into the crisis, many are still struggling to catch up.
David Moniz started a new job in March as a resident chef at Sur La Table, the kitchen goods retailer, in San Jose, Calif. His timing was terrible: After he spent just one day on the job, the store shut down because of the virus, and he was furloughed.
It took Mr. Moniz, 29, weeks of calling to get through to California’s employment office and file an unemployment claim. Then, after a few weeks, his benefits abruptly stopped. His file is shown as “pending” on the state website and, despite endless hours of calling, he has been unable to get through to address the problem. He hasn’t received a check since June 1.
Without any money coming in, Mr. Moniz has burned through his savings and racked up debt. He says he has $28 left before he hits his credit limit, and owes $200 in late fees and penalties to his bank, Wells Fargo.
“Wells Fargo calls me more than anyone in my family does because of my account right now,” he said.
Overwhelmed state unemployment offices could soon have even more to deal with. President Trump’s move over the weekend to supplement jobless pay through disaster funds would create a new program that states will have to administer. And if Congress eventually reaches a deal to revive a version of the $600 weekly unemployment supplement that expired at the end of July, additional work by the states will be needed to carry it out.
Families with children have taken a comparatively heavy economic hit as the coronavirus pandemic costs households jobs and income, a new analysis from the Federal Reserve Bank of New York found.
“Households with children have been more likely to suffer job and income losses, contributing to a greater need to dig into savings, a higher rate of missed rent and debt payments, and food insufficiency,” a group of researchers at the central bank branch wrote in a web post.
The analysis draws on data from the monthly Survey of Consumer Expectations, an internet-based Fed survey that included coronavirus-related questions in its May and June editions.
Single parents, minority households with children, and families living in lower-income neighborhoods reported particularly high levels of hardship.
The authors found that household heads lost jobs in 12.9 percent of families with children since the pandemic took hold, compared with 9.2 percent in households without children. In single-parent households, the share jumped to 23.2 percent.
Likewise, 39 percent of households with children said they had seen their income decline while 42.1 percent of single-parent households said the same.
About 30.8 percent of households over all reported a hit to household income.
Given those losses, a higher share of households with children said they had canceled or postponed a major purchase or vacation, put off doctors visits or cut back spending since the onset of the crisis, the report finds.
Food insecurity has also been a concern.
“Heads of households with children are also more likely to report having trouble finding enough food to eat or to have missed meals, with a larger proportion receiving food donations” since February, the post said.
The weekly report on unemployment claims Thursday showed that tens of millions of Americans were still relying on jobless benefits to buy food and pay rent. But those benefits just got a lot less generous.
The emergency spending bill passed by Congress in March added $600 to recipients’ weekly state unemployment checks. But that money ran out at the end of July, and negotiations between the White House and Democrats to reinstate it have stalled. President Trump announced over the weekend that he would act unilaterally to replace the extra money — at a fraction of its former level — though it remains unclear how that program would work or how long it would take to put in place.
In the meantime, many jobless Americans have seen their weekly income slashed by half or more. State unemployment benefits vary widely: In Massachusetts, some workers can receive more than $900 a week, while in Mississippi, the maximum benefit is just $235. Benefits tend to be less generous in states with larger Black populations.
The loss of the extra benefits could also hurt the broader economy at a time when hiring has slowed. The federal government paid $18.4 billion in unemployment benefits in the first 10 days of August, down from $35.4 billion in the same period in July, according to data from the Treasury Department. (The federal government is still paying for other benefits, including the Pandemic Unemployment Assistance program, which covers people left out of the regular state system.) Research has found that unemployment benefits are a particularly powerful form of stimulus because recipients tend to spend the money rather than saving it.
“Those are the people who from a macroeconomic perspective you want to be targeting the most,” said Alix Gould-Werth, an expert on unemployment insurance at the Washington Center for Equitable Growth, a progressive think tank. “Those are the lowest earners — they’re the ones who need the money the most.”
While millions of employees across Europe have been cast lifelines by government furlough programs meant to limit mass unemployment, legions of other workers on precarious irregular contracts were excluded from that support.
The furlough programs, widely credited with sparing over 60 million people from layoffs in Europe, have a major drawback: They don’t shelter millions of workers who aren’t on company payrolls, including the newly self-employed, freelancers and people on the kind of short-term contracts that employers have used en masse since the 2010 financial crisis to reduce labor costs.
Around 15 million people in the European Union were unemployed in June, a rise of 700,000 since April, according to Eurostat, Europe’s statistics agency. Heavily seeding those ranks are people who had been on work contracts. They account for around four out of 10 workers in the industries hardest by Covid-19, including tourism, catering, restaurants and services where there is direct contact with other people, according to the Organization for Economic Cooperation and Development.
European governments have sought to cushion the blow by expanding some protections for nonstandard workers, easing access to paid sick leave and introducing or increasing unemployment benefits — but that support goes only so far.
AMC Entertainment, the largest movie theater chain in the United States, said that 100 of its 600 theaters would reopen on Aug. 20. Tickets on that day will cost 15 cents, the price of admission when AMC was founded in Missouri 100 years ago. AMC said about 300 additional locations would be open by Sept. 3, when Warner Bros. plans to release Christopher Nolan’s “Tenet.” AMC has been closed since March; two previous reopening attempts were canceled because of surging coronavirus cases.
The Walt Disney Company will allow the Florida Division of Emergency Management to operate a public testing facility on its Walt Disney World property, ending a standoff with the Actors’ Equity Association, which represents roughly 700 actors, dancers and stunt workers at the theme park complex. When the mega-resort started to call back its workers in late June, Actors’ Equity demanded that Disney provide regular tests, noting that its members worked in jobs where they were unable to wear masks or stay six feet from one another. Disney declined. Disney has not changed its stance on providing employee testing. However, the union appeared to be satisfied with Disney’s offer to host the public facility.
The coronavirus pandemic has wiped out business for Lyft, which said Wednesday in an earnings report that its second-quarter revenue was down 61 percent from a year ago, to $339.3 million. Its net loss was $437.1 million. Ridership was down 60 percent in the quarter than ended June 30 from the same period a year ago, Lyft said. Uber has accelerated its food delivery services to offset the impact of the pandemic, but Lyft has remained focused on transportation.