Second Home Loans Could See Rise in Rates
January 10, 2022 Government & Community Affairs, Industry News
The Federal Housing Finance Agency (FHFA) recently announced targeted increases to Fannie Mae and Freddie Mac's (the Enterprises) upfront fees for certain high balance loans and second home loans.
High balance loans are mortgages originated in certain designated areas above the baseline conforming loan limit. The new fees will go into effect for deliveries and acquisitions beginning April 1, 2022 in order to minimize market and pipeline disruption.
To ensure that the Enterprises continue to provide strong support for affordable housing, the existing beneficial pricing treatment of certain programs – such as HomeReady, Home Possible, HFA Preferred, and HFA Advantage – will not be altered by the new fees. In addition, loans to first time homebuyers in high cost areas with incomes at or below 100 percent of area median income will have no specific high balance upfront fees.
Here is further information from the National Association of REALTORS®:
The fees translate into roughly 0.05%-0.15% (e.g. 4.05% vs 4% today) higher on high-cost and 0.225% to 0.75% higher on 2nd homes.
This change will obviously have an impact on affordability in high-cost areas (California, Chicago, Washington, DC, etc.) and areas with concentrations of second homes such as coastal markets - including Cape Cod, Martha’s Vineyard, and Nantucket. These new fees may compound the impact of other recent changes in segments such as 2nd homes and condos that have seen several rule changes over the last 12 months and face new requirements on documentation and reserve requirements.
NAR opposes g-fee increases. However, to the extent that these help Fannie and Freddie to maintain broad liquidity as the federal government pulls back on its unprecedented support during the pandemic, the changes could be helpful in meeting that goal.
Back in January, the FHFA put caps on how many second and investor loans the Enterprises could buy.. These caps did not reflect risk, and were permanent. These fee increases do reflect risk, are not permanent, and can be modified as risks abate. In addition, borrowers impacted by the caps often face much higher fees from purely private lenders than they faced by these increases. Overall, the fees are not expected to have an onerous impact on the market due to these factors.
While disappointing, the fee increases could help the Enterprises to maintain access and affordability by avoiding future fees if the market begins to hit bumps (e.g. foreclosures) in the months/years ahead.