FHFA (Fannie Mae’s and Freddie Mac’s
conservator) announced March 10 that they are limiting new loans
secured by second homes or investment properties to 7% of the
overall loans they purchase (roughly HALF their historic
levels!), effective April 1.  What does this mean to borrowers seeking
investment/2nd home mortgages? Turns out, it means A LOT.

While FHFA did not add any new “loan level
pricing adjustments” (the fees borrowers pay for
various perceived risk factors) in the announcement, many mortgage lenders added (or will soon add) substantial costs to these
loans. For example, Penny Mac (who buys large numbers of
Fannie/Freddie loans from originating lenders), immediately added a
2.25% cost to new 2nd home
mortgages, regardless of equity. The pricing adjustment for a new investment property loan
with less than 25% equity rose to a staggering 5% of the loan
size ($10,000 on a $200k loan!).

While not every investor raised their pricing
adjustments immediately after FHFA’s announcement, most eventually will, as they seek to avoid closing second
home/investment loans they can’t be certain Fannie/Freddie
will purchase (due to the 7% cap mentioned above)

Note, these are just the NEW investor pricing
adjustments based on FHFA’s announcement and substantial others still apply based on credit scores, loan purpose, property type,
equity, etc. As a reminder, Fannie/Freddie also added a .5% cost
to all refinances over $125K last fall as the
pandemic increased defaults and forbearances.

The impact for certain housing markets (such
as FL condos, which historically have large %’s of second
homes/investment ownership) can’t be overstated. If you’ve been
considering buying a second home, it’s critical you
contact your lender immediately to discuss how this announcement
will affect your loan’s rates and costs.

Fortunately, loans in process that are already
locked will not be subject to the new adjustments,
but floating loans almost certainly will be.

Bottom line, demand for second homes and
investment properties will be greatly impacted by FHFA’s
policy. Expect to see far more cash buyers for these situations,
and (more than likely) far fewer bidding wars as the new
pricing adjustmentsraise rates and costs. Outside investors may
eventually purchase more of these loans (which is FHFA’s
goal), but for the moment, prepare to pay substantially higher
costs, or cash for that getaway condo or rental
property!

By Ted Rood , dated 2021-03-12 15:07:16

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Courtesy of Mortgage News Daily

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