Agency Investment and Second Home lending changes.

sgip

Well-known member
FNMA released information today ( Lender Letter 2021-08 ) of great impact to non-owner occupied AND second home lending. The Agencies are expected to push back the amount of investment/second home loans they will buy to 7 percent of their portfolio.

http://www.mortgagenewsdaily.com/03112021_loan_underwriting.asp


Some lenders have pulled their non-owner lending products so as to not get caught holding unsellable mortgages. Investment and 2nd home loan rates are expected to run past 5 percent in the coming days for Conforming Conventional loans.  More to follow.

https://youtu.be/EKu7TYWNxqA
 
YOW! You can't raise the rate high enough to absorb that fee amount. Best you might do is a 5 handle rate with 2-3 points. 

It's now either Jumbo/non-QM/or $$$$ for an Agency loan.

This isn't just impacting onesie-twosie rental properties, nor the big 2nd home market in desert / beach communities, but also 2-4 unit purchases. Most Jumbo lenders will be OK with a SFR rental, but 2-4 units are radioactive to many in the jumbo lending world. 

IMHO what this move is telegraphing is this: Cnce the eviction rules are deemed unconstitutional (unreasonable seizure), there may soon thereafter be a great offloading of rental property by landlords tired of the fight and economic drain. A great number of new investor buyers will line up to purchase these rental units, but the Agencies are trying to force these sales into becoming primary residences not rental units by starving the market of financing.

If this this the case, soon we will see the real world application of Dr. Ian Malcolm's dictum: "Life, uh, finds a way" and other methods of buying rental or 2nd homes will arise
 
I think that's pretty spot on. They are trying to force more transactions to be primary residence. Not all lenders have implemented an LLPA yet but I bet you they are analyzing their portfolio mix to make sure they stay under the 7%.

Pennymac is one of the early ones but I bet others are following suit.https://www.gopennymac.com/announcements/announcement-21-18

Good luck getting an investment property with 25% down now. Your rate will be sky high and/or you're paying many points to obtain the loan. We're talking to the tune of tens of thousands in points.
 
The jumbo lenders will be in the 4's with reasonable costs... for now. As said by another, " a rising tide lifts all boats". If the rental or 2nd home market will bear a 4.x handle rate with 1-2 points Jumbo versus a Conforming rate at 5.x with 3.0 points, expect fees to rise.

This change is going to crush financed sales in areas like Palm Desert and Vegas. Cash will be king! 
 
My main lender just announced 5 point adjustment for investment properties and 2.5 point adjustment for secondary homes. This will absolutely crush "new" real estate investors and greatly benefit cash investors.
 
USCTrojanCPA said:
Wow, what a change. So direct jumbo lenders will jack up the rates on 2nd homes as well?

They are leaving money on the table if they don't so I assume they will.
 
OCLuvr said:
Won?t this kill real estate appreciation?

It'll definitely take out many investors who are financing 75% of the purchase but the vast majority are primary resudence buyers so it will decrease the amount of bidders on a home somewhat.
 
I think it's premature to make predictions as to what will happen but my thoughts are that the cash investor is going to have an easier time outbidding the traditional 20% or less primary home buyer.
 
Cares said:
I think it's premature to make predictions as to what will happen but my thoughts are that the cash investor is going to have an easier time outbidding the traditional 20% or less primary home buyer.

Only if they bid at least within 1% of the highest strong finance buyers.  I've had cash buyers not get homes because they got outbid by financed buyers by 1%+.
 
Soylent Green Is People said:
A good post resource on percentage of monthly mortgage applications that are 2nd home or Non-Owner - 10.1 percent at present, needing to be reduced to 7%. A 3% difference is relatively small however when 100b per month is being funded, that's a very big number of borrowers being impacted.
https://www.calculatedriskblog.com/2021/03/mba-share-of-second-home-and-investor.html

I get what the Feds are trying to do, let the little guys primary residences so they don't have to compete with 2nd home buyers and investors as much.
 
So, less investment home and more Primary home purchases on the way? Meaning fewer rentals coming in the market and rents going up?

Joe will have little bit of ease buying home as some competition is removed. Jane will have to part with few more $ every month in rent?
 
Damn... I'm glad I sold my last IE rental last year, in the early days of COVID.  USC and IHO have repeatedly tried to heckle me for that, but this is going to be Armageddon for that market.  Sure, the all cash buyers will still be able to invest, but not at today's prices - the returns just aren't good enough without leverage (which wasn't the case when I bought in 2014-15, when prices were less than half of what they are today).

Meanwhile, the S&P 500 is up 66% YoY.  Where would you rather have put your money one year ago?

I think there's a strong argument to be made that the GSE's should be buying zero investor and second home loans.  What is the benefit to society of having them subsidize wealthy investors and buyers of second homes?  Shouldn't we be making home buying more affordable for those that are trying to purchase a residence, especially first-timers?  I applaud this move by the GSE's.
 
Liar Loan said:
Damn... I'm glad I sold my last IE rental last year, in the early days of COVID.  USC and IHO have repeatedly tried to heckle me for that, but this is going to be Armageddon for that market.  Sure, the all cash buyers will still be able to invest, but not at today's prices - the returns just aren't good enough without leverage (which wasn't the case when I bought in 2014-15, when prices were less than half of what they are today).

Meanwhile, the S&P 500 is up 66% YoY.  Where would you rather have put your money one year ago?

I think there's a strong argument to be made that the GSE's should be buying zero investor and second home loans.  What is the benefit to society of having them subsidize wealthy investors and buyers of second homes?  Shouldn't we be making home buying more affordable for those that are trying to purchase a residence, especially first-timers?  I applaud this move by the GSE's.

What I didn't agree with you about was that you sold at the top of the market.  As I mentioned, no one can time that whether it's stocks or real estate.  If you took your cash and invested in the stock market and had strong results then good on you.  Even with higher leveraged investors and 2nd home buyers dropping out due to higher rates, prices in the short term will continue to increase because there more demand than supply.
 
USCTrojanCPA said:
What I didn't agree with you about was that you sold at the top of the market.  As I mentioned, no one can time that whether it's stocks or real estate.  If you took your cash and invested in the stock market and had strong results then good on you.  Even with higher leveraged investors and 2nd home buyers dropping out due to higher rates, prices in the short term will continue to increase because there more demand than supply.

I don't recall making the claim that I sold at the top.  Oh yeah, that's right... I didn't!!! LOL. 

C'mon USC just fess up.  You were heckling me.

Yet amazingly, I have made more from unleveraged stock investments this past year than I would have with the leveraged returns from my last rental.  When I sold, the LTV was about 36% so I would have needed appreciation in excess of 40% to match my unleveraged stock returns.  The property did increase in value, but maybe only by about 20% or so after I sold (two comps have sold, so hard to tell).

Real estate was also much higher risk to be holding in my opinion.  My blue collar renters were the demographic most likely to be facing job losses.  These are not people that have the option of working remotely via Zoom.  I'm betting other landlords were facing uncollected rents along with the prospect of no eviction.  Yikes!! 

With stocks, I had none of the management headaches that other landlords had during this pandemic.  I also had the liquidity to switch to an all-bond portfolio if the sh*t hit the fan again, which was a very real possibility during the unpredictability of this pandemic.

So you are, in effect, heckling me for making more than I would have if I had kept the rental and dealt with the accompanying headaches of the past year, all while lowering my overall portfolio risk. 

Keep telling yourself (and your clients) that these things can't be timed.  It's blatantly untrue and you should know better.
 
Liar Loan said:
USCTrojanCPA said:
What I didn't agree with you about was that you sold at the top of the market.  As I mentioned, no one can time that whether it's stocks or real estate.  If you took your cash and invested in the stock market and had strong results then good on you.  Even with higher leveraged investors and 2nd home buyers dropping out due to higher rates, prices in the short term will continue to increase because there more demand than supply.

I don't recall making the claim that I sold at the top.  Oh yeah, that's right... I didn't!!! LOL. 

C'mon USC just fess up.  You were heckling me.

Yet amazingly, I have made more from unleveraged stock investments this past year than I would have with the leveraged returns from my last rental.  When I sold, the LTV was about 36% so I would have needed appreciation in excess of 40% to match my unleveraged stock returns.  The property did increase in value, but maybe only by about 20% or so after I sold (two comps have sold, so hard to tell).

Real estate was also much higher risk to be holding in my opinion.  My blue collar renters were the demographic most likely to be facing job losses.  These are not people that have the option of working remotely via Zoom.  I'm betting other landlords were facing uncollected rents along with the prospect of no eviction.  Yikes!! 

With stocks, I had none of the management headaches that other landlords had during this pandemic.  I also had the liquidity to switch to an all-bond portfolio if the sh*t hit the fan again, which was a very real possibility during the unpredictability of this pandemic.

So you are, in effect, heckling me for making more than I would have if I had kept the rental and dealt with the accompanying headaches of the past year, all while lowering my overall portfolio risk. 

Keep telling yourself (and your clients) that these things can't be timed.  It's blatantly untrue and you should know better.

You know that I'm not the heckling type. haha  You sold an investment property and given that your tenants would be at risk of not paying rent it wasn't a bad move on your part, especially if you parlayed those gains with more stock market gains.  I know I sound like a broken record but I'll keep saying it, a primary residence purchase is a home/place to live and an investment secondarily.  Life happens and people make their decisions to buy based upon their and their family's needs.  Most all of my buyers last year were upgrade buyers looking to get more spacious because they were working from home and their smaller homes/rentals were not suited for one or both spouses to work from home as well as getting more yard space for the kids.  I always tell my buyers, if you aren't buying for at least 5+ years then maybe you shouldn't be buying because I don't know what prices will do in the intermediate terms.  I do know what prices will do in the very short term and in the longer term.  I put my money where my mouth is and I bought 2 investment rental properties with in a partner in the first 2 months of this year and we got a 2.99% 30-year fixed rate for both properties and are basically breakeven with 25% down.

No way you, I or anyone else can perfectly time either the real estate or stock market.  Would you provide predicted we would be up 10%+ in prices from the moment that covid broke out to today back in March 2020?  Nope because I know I thought prices would go down or best case stay flattish at that time but look what the market did and what it's doing .  The market will do what it wants regardless of what you or I think and what graphs, trends, analysis, etc will tell you that it might be going.  I know only 2 things that will cause prices to drop...either less buyer demand and/or more supply of homes and today we have the opposite of those 2 things so my belief is that prices will continue to keep going higher until the market is at balance.

Some buyers told me that this run-up feels like 2004-2007.  Nope, not even close because the buyers today are very strong and loans are fully underwritten today with no BS NINJA loans.  The current run-up we are seeing today reminds me of the 20%+ price appreciation we saw from 3Q 2012 to the end of 2013.  I'm basically seeing the same things happening as I did back then.  I do think the market will get more in balance sometime this year but it'll be at a higher price level than today.  Will it be 3% higher?  5% higher?  10% higher?  I have no idea as there are too many variables that'll dictate how much further prices can go up.
 
Liar Loan said:
Damn... I'm glad I sold my last IE rental last year, in the early days of COVID.  USC and IHO have repeatedly tried to heckle me for that, but this is going to be Armageddon for that market.  Sure, the all cash buyers will still be able to invest, but not at today's prices - the returns just aren't good enough without leverage (which wasn't the case when I bought in 2014-15, when prices were less than half of what they are today).

Meanwhile, the S&P 500 is up 66% YoY.  Where would you rather have put your money one year ago?

I think there's a strong argument to be made that the GSE's should be buying zero investor and second home loans.  What is the benefit to society of having them subsidize wealthy investors and buyers of second homes?  Shouldn't we be making home buying more affordable for those that are trying to purchase a residence, especially first-timers?  I applaud this move by the GSE's.

Just curious where LL put his sales proceeds when he sold his IE rental property in 2020, BEFORE the run-up?  Hopefully somewhere good, bc real estate might have been the best place to invest for the following 12 months. 

LL might be correct about a pending home price drop in the near/mid term, but even a broken clock is right twice a day. 
 
Back
Top