Lending is Getting Tighter & More Expensive

Second home and rental property transactions are getting more expensive as FHFA is requiring that Fannie and Freddie not buy more than 7% of all mortgages when those mortgages are for second homes and rental properties. Last year about 10.5% of our mortgages as a company were for second homes and rental properties which is about the national industry average.

So, how does a lender reduce their percentage of loans closed for rental properties or second homes? So, we have raised our fees on second home transaction by 75 bps thus raising a borrower’s rate by about ¼%. Our CEO told us last week our goal is that some borrowers will go to another lender instead. However, nearly every other lender is raising their fees and or rates too. Thus, I doubt this will work.

I fully expect to see some major changes from Fannie and Freddie soon that will further restrict lending on these properties.

Also, the Mortgage Bankers Association wrote a letter to FHFA and the Treasury Secretary about some other proposed changes in FHFA’s Preferred Stock Purchase Agreements. Changes such as—
· Restrictions on the number of loans with a CLTV ratio more than 90%.
· Restrictions on debt to income ratios more than 45%. Now this is already happening through Fannie and Freddie’s underwriting software. For ratios to exceed 45% the borrower needs to put at least 5% down and have a 740 Fico.
· Restrictions on borrowers with Ficos less than 680. Fannie and Freddie’s underwriting software is causing this to happen already too. It’s rare I will see a conventional loan approved for a borrower with a Fico less than 680 without at least 15% down.
· Borrowers with variable income such as overtime, bonuses, and commissions will be deemed as loans with more risk.
· Borrowers with high credit card debt will be deemed riskier borrowers too.