Do residential properties with one to four residential units and second home mortgages carry a higher risk? Apparently the US Treasury Department says.
Such loans, signed by Fannie Mae and Freddie Mac, could cost you more under restrictions tacitly announced earlier this year.
According to a January 14 press release, then Treasury Secretary Steven Mnuchin and Mark Calabria, director of the Federal Housing Finance Agency, were changed Fannie Mae and Freddie Mac Preferred Stock Purchase Agreements.
The change reviews a system created by the Treasury Department during the 2008 mortgage collapse that has allocated billions of dollars to aid agencies.
Beginning April 1, Fannie Mae will set a 7% limit on investments and second home mortgages bought in the country’s mortgage shops. Freddie hasn’t announced the change yet, but the Treasury Agreement puts Freddie at the same 7% limit. In a nutshell, the agreement means that the next year or 52 weeks of funded second home loans and rental mortgages sold by each lender to Fan and Fred cannot exceed 7% of the loan volume that each lender has recorded in the past 52 weeks Has .
How does it look on the streets? Not good. Many lenders have suddenly lost their appetite for these loans because they worry that Fannie and Freddie will say “no sale” for you because lenders exceed their allowable rental and second home loans. There is no cheaper way of obtaining mortgage finance than F&F. In fact, raising other mortgage funds requires more money and charges higher rates and points. There is no point in funding loans that may be sold elsewhere with a loss of interest.
I asked five lenders about possible price increases. Many have already increased their second home financing by an average of 1.45 points. Investment property scored an average of 1.65 points.
In other words, the points add $ 7,250 to a second home loan of $ 500,000, or add nearly a quarter point to the mortgage rate. Using the same example of $ 500,000 for the rental property would add $ 8,250 or increase the rate by more than a quarter point.
Only one lender, a giant I interviewed, hasn’t changed their second home and investor prices. Larger lenders have an advantage in this groundbreaking agreement as it is much easier to meet a 7% limit on, say, $ 100 billion in Fannie or Freddie-supplied loans, compared to smaller stores that supply $ 1 billion .
Robert Broeksmit, CEO of the Mortgage Bankers Association, believes that consumers and mortgage lenders who sell closed-end loans to Fannie and Freddie can be best served with the Treasury and FHFA solving their risky credit worries on their own, rather than this complicated burden on the mortgage lending community to distribute.
“Applying these limits at the lender level rather than managing them at the GSE (Fan and Fred) level creates the potential for significant market disruption,” Broeksmit said. “We want to better understand the flexibility FHFA and Treasury have and whether other GSE approaches would bring them below PSPA thresholds this year, but in a more efficient and less disruptive way.”
Regardless of investments and second home allocations, Fan and Fred must limit mortgages with purchase volume less than 10% or equity (as in the case of a refinance), as well as borrowers with debt-to-income ratios greater than 45% and an average percentage of FICO scores less than 680 points, although these percentages are below the 7% limit for rentals and second homes.
“We’re also concerned that these lender-level caps might also be considered for the higher-risk product limits,” said Broeksmit. “This will be particularly problematic for lenders serving low-income and low-income buyers as well as first-time buyers. Consumers and lenders need to know about their credit options and rates at the beginning of the transaction, not about the delivery of the credit. “
The US Treasury Department did not answer my question about such consequences for smaller lenders and extension mortgage buyers. The Treasury Department would also not address whether it was a finance minister Janet Yellen would cancel or change the January 14th purchase agreement for preferred shares.
The price differences in mortgages for rental apartments and second homes have already hit the streets. I haven’t seen any changes for the low down payment, high rate, and low credit borrowers. Buy hard. If you are looking for financing for a rental or a second home, ask your mortgage lender what happens if price adjustments have been made.
You can be sure that even the giant lenders will ultimately charge more for these so-called riskier loans. When the little folks are forced to ask so much more – effectively discouraging or eliminating those mortgage menu items – the big guys can raise the price a bit and still be cheaper than smaller mortgage lenders.
Mortgage goes up again
Freddie Mac Rate News: The 30-year fixed interest rate averaged 3.09%, 4 basis points higher than last week. The 15-year fixed interest rate averaged 2.4%, 2 basis points higher than last week.
The Mortgage Bankers Association reported a 2.2% decrease in mortgage application volume from the previous week.
Bottom line: Assuming a borrower receives the average 30 year fixed rate on a compliant loan of $ 548,250, the payment last year was $ 170 higher than this week’s payment of $ 2,338.
What I see: On-site, well-qualified borrowers can get the following 1-point fixed rate mortgages: a 30-year FHA at 2.5%, a 15-year conventional at 2.125%, a 30-year conventional at 2.875%, a 15- year old. conventional high balance for one year ($ 548,251 to $ 822,375) at 2.25%, a conventional 30-year high balance at 3.125%, and a jumbo 30-year balance of 3.25%.
Note: The 30 Year FHA Compliant Loan is limited to loans of $ 477,250 in the Inland Empire and $ 548,250 in Counties LA and Orange.
Eye-Catcher Loan Program of the Week: A 15-year fixed rate of 2.375% with no points.