Ocean Mortgage 2021 Newsletter 104

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The Federal Housing Finance Agency (FHFA) just made it more expensive to get a mortgage on a second (aka vacation) home or rental/investment property.

Here’s What Happened:

Fannie Mae and Freddie Mac, government-sponsored enterprises (GSE’s), buy conventional loans from lenders. Lenders use the cash received from the GSE’s to lend out more money to consumers. This brings a tremendous amount of liquidity and stability to the mortgage market (i.e., Fannie Mae purchased over $1.4 trillion of mortgages from lenders in 2020).

Through the FHFA, the U.S. Treasury Department recently imposed the following restrictions that  are disrupting mortgages on second and investor properties:

  • only 7% of the GSE’s portfolios can now consist of these types of mortgages (about 50% of what they have held historically), and
  • lenders are being capped on the volume of these loans they can sell to the GSE’s, which are deemed to be higher risk.

Since most lenders rely heavily on Fannie and Freddie to buy their loans, lenders may now not be able to sell all the mortgages they fund on second or investor loans. For this reason, many lenders are now assessing risk charges/fees to consumers (up to 5.0% of the loan) to curtail their lending on these product types – with the result being increased interest rates.

Silver Lining
Not all lenders are assessing these risk adjustments. Also, since this announcement does not affect jumbo loans (mortgages exceeding $548,250), wholesale lenders are now offering bonuses to borrowers

– which suddenly has made jumbo interest rates more competitive.

Here’s the Point: If you are borrowing funds to acquire or refinance a second or investor home, choose your lender wisely.

Mike Kanuka, Founder & President

More Fun Facts:

  • Since 2009, Fannie Mae and Freddie Mac have been buying roughly 90% of the mortgages advanced by lenders in the U.S. They were created by the U.S. Congress and are overseen by the FHFA.
  • Fannie Mae generally buys mortgages from larger commercial banks, while Freddie Mac buys from smaller banks. These GSE’s either hold the mortgages they buy in their own portfolios or they package the loans into mortgage-backed securities (MBS) that are sold in the secondary market.
  • The U.S. Treasury: (a) manages the nation’s finances and ensures the financial security of the U.S., (b) oversees several departments including the IRS and U.S. Mint, and (c) is responsible for issuing Treasury bonds and printing all paper currency and coins. It also advises the legislative and executive branches of the government on matters of fiscal policy.

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