Last Thursday the mortgage industry was given no notice that the pricing for 2nd homes and investment properties was going up. Immediately.
Long story short, the FHFA which oversees Fannie Mae & Freddie Mac has determined that it wants to limit the amount of 2nd homes and investment properties it finances to about 7% of the total portfolio. Currently it’s somewhere around 10% which is a pretty big drop in business when you consider it across millions of properties around the country.
The FHFA for the last few years has been trying to remove itself from full government conservatorship. The details of that are another story/blogpost. However, this is the second time in the last few months they passed through an immediate change in pricing.
This change: http://www.mortgagenewsdaily.com/channels/community/969950.aspx
So they have a recent history of doing this. First question is why? The answer is so that lenders don’t have any time to warn consumers and “get them in” before market pricing changes. Second question is why this change? I believe that the current FHFA director and management are looking to privatize more and more of the housing finance market. The fact is that this change has the effect of prioritizing owner occupied financing over 2nd homes and investment properties. By raising the cost of non owner occupied financing, they are likely hoping that they will eventually draw private investors like banks, hedge funds etc into lending at the higher rates.
Remember that a higher interest rate to the borrower is a higher return on investment to the lender. This very well may have the desired impact over the long run. It should eventually have the impact of reducing the government agencies risk exposure to these loans and increasing the private sector appeal of these investments. However, in 2021 at best it will make financing these properties more expensive. At worst, it will slow down the growth and sales of these types of properties that are often concentrated in similar markets. There is no way to be certain of the impact, but what’s done is done and we are going to find out.
