The FHFA (restorer of Fannie Mae and Freddie Mac) announced on March 10th that it was reducing new loans backed by second homes or investment properties to 7% of the loans they acquired effective April 1st (approximately HALF their historical level!). What does this mean? mean for borrowers looking for a home investment / mortgage? It turns out it means a lot.
While the FHFA did not add any new “loan-level price adjustments” (the fees borrowers pay for various perceived risk factors) in the announcement, many mortgage lenders added (or will soon add) significant costs to these loans. For example, Penny Mac (who is buying a large number of Fannie / Freddie loans from original lenders) instantly added 2.25% cost to new second home mortgages regardless of equity. The price adjustment for a new investment home loan with less than 25% equity rose to a staggering 5% of the loan size ($ 10,000 on a $ 200,000 loan!).
Although not every investor increased their price adjustments immediately after the FHFA announced, most will eventuallyTrying to avoid second home / investment loan closings, they can’t be sure if Fannie / Freddie will buy them (due to the 7% cap mentioned above).
Note that these are only the NEW Investor Price Adjustments based on Announcement of the FHFA and significant others still apply based on credit scores, loan purpose, property type, equity, etc. As a reminder, Fannie / Freddie added 0.5% to all refinances in excess of USD 125,000 last fall as the pandemic increased the defaults and Forbearance has increased.
The impact on certain housing markets (e.g. FL condominiums, which historically have had a large proportion of second homes / investment ownership) cannot be overrated. If you have been considering buying a second home, it is important that you contact your lender right away to discuss how this announcement will affect the interest rates and costs of your loan.
Fortunately, blocked loans are being processed Not are subject to the new adjustments, but floating loans will almost certainly be.
Bottom lineThe demand for second homes and investment properties is heavily influenced by FHFA policy. In these situations, expect far more money buyers and (more than likely) far fewer bidding wars as the new price adjustments increase prices and costs. Outside investors may be able to buy more of these loans (which is the goal of the FHFA), but for the time being, prepare to pay a much higher cost or cash on that getaway or rental property!