Loan costs for second homes, rents skyrocket under new Fan-Freddie rule – Orange County Register
Are residential rental properties with one to four units and mortgages on second homes more risky? Apparently that’s what the US Treasury Department says.
Such loans taken out by Fannie Mae and Freddie Mac could end up costing you more under the restrictions quietly 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, changed Fannie Mae and Freddie Mac Preferred Share Purchase Agreements.
The amendment defeats a system created by the Treasury during the 2008 mortgage crisis that advanced billions of dollars to support agencies.
Starting April 1, Fannie Mae will put a 7% limit on investments and second home mortgages he purchases from mortgage stores nationwide. Freddie has yet to announce the change, but the cash deal has the same 7% limitation for Freddie. In summary, the deal means that the following year or 52 weeks of funded second home loans and rental mortgages sold to Fan and Fred by each lender cannot represent more than 7% of each lender’s loan volume. registered in the previous 52 weeks. .
How is it going in the streets? Not good. Many lenders have suddenly lost the urge to provide these loans because they fear that Fannie and Freddie will say “no sell” to you because the lenders have exceeded their authorized second home rental and loan allowances. There is no such thing as a cheaper mortgage financing source than F&F. In fact, other mortgage financing sources require more money and charge higher rates and points. There is no point in financing loans that could eventually be sold elsewhere with a loss in interest rates.
I asked five lenders about possible price increases. Many have already increased the financing of their second homes by 1.45 points on average. Investment properties suffered an average price impact of 1.65 points.
In other words, the points add $ 7,250 to a second home loan of $ 500,000 or increase the mortgage rate by almost a quarter of a point. 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, that I interviewed did not change their second home and investor prices. Bigger volume lenders have an advantage in this game-changing deal as it’s much easier to stay in a 7% limit on, say, $ 100 billion in loans from Fannie or Freddie compared to smaller stores. offering $ 1 billion.
Robert Broeksmit, CEO of the Mortgage Bankers Association, believes that consumers and mortgage lenders who sell closed loans to Fannie and Freddie would be better served if the Treasury and FHFA solved their risky lending problems on their own instead of spreading it out. complicated burden on the mortgage community. .
“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 would like to better understand the flexibility that the FHFA and the Treasury have and whether other approaches to GSEs would bring them below the PSPA thresholds this year, but in a more efficient and less disruptive manner. “
Regardless of the investment and second home allowances, Fan and Fred are required to limit the volume of mortgage purchases with less than 10% down payment or equity (as in the case of refinancing), borrowers with debt-to-income ratios above 45% and average FICO scores are below 680, although these percentages are below the 7% limit for rentals and second homes.
“We are also concerned that these same lender-level caps may also be considered for limits on ‘higher risk’ products,” Broeksmit said. “This will be particularly problematic for lenders serving low- and moderate-income buyers and first-time buyers. Consumers and lenders need certainty about their loan options and pricing from the start of the transaction, not when the loan is granted ”,
The US Treasury Department did not answer my question about such a consequence for small lenders and by extension mortgage buyers. The Treasury would also not deal with whether the Secretary of the Treasury Janet Yellen would cancel or modify the January 14 preferred share purchase agreement.
Mortgage price disparities for rentals and second homes have already hit the streets. I haven’t seen any changes yet for low down payment, high ratio, and low credit borrowers. Shop hard. Ask your mortgage originator if any price adjustments have been made if you are seeking financing for a rental or second home.
You can be sure that even the giant lenders will end up charging more for these so-called riskier loans. If the little guys are forced to charge a lot more – discouraging or effectively removing these items from the mortgage menu – then the big boys can mark up the price slightly and still cheaper than the smaller mortgage lenders.
Mortgage on the rise again
Freddie Mac Rate News: The 30-year fixed rate averaged 3.09%, 4 basis points higher than last week. The 15-year fixed rate averaged 2.4%, 2 basis points higher than last week.
The Mortgage Bankers Association reported a 2.2% drop in mortgage application volume from the previous week.
At the end of the line : Assuming a borrower gets the 30-year average fixed rate on a compliant loan of $ 548,250, last year’s payment was $ 170 more than this week’s payment of $ 2,338.
What I see: Locally, well-qualified borrowers can get the following fixed rate mortgages with a cost of 1 point: 30-year FHA at 2.5%, 15-year conventional at 2.125%, 30-year conventional at 2.875% , a 15- one-year conventional high balance ($ 548,251 to $ 822,375) at 2.25%, a 30-year conventional high balance at 3.125% and a 30-year jumbo set at 3.25%.
To note: The 30-year FHA-compliant loan is limited to loans of $ 477,250 in the Inland Empire and $ 548,250 in Los Angeles and Orange counties.
Eye-catching loan program of the week: A 15-year fixed rate at 2.375% no points.