Earlier this year, the Federal Housing Finance Agency made a new rule that limited Fannie Mae and Freddie Mac’s ability to purchase second home and investment property loans. As a result, interest rates and fees increased on those mortgages. The new rule has been paused for awhile while the FHFA reviews the ruling.
The rule affected the amount of investment and second home loans that Fannie Mae and Freddie Mac could purchase. They were only to keep 7% of their portfolio in second home and investment mortgages. This definitely affected investment mortgage rates. I saw those rates jump much higher. Second home rates did not increase as much as investment rates did. How soon will rates drop on these programs? I have seen rates on investment properties drop compared to where they were this summer. How long this will last we don’t know.
In the past second homes and investment property mortgages were over 10% of Fannie and Freddie’s loan portfolio. In order to drop the amount to 7%, they raised rates and in some cases added fees to make the loans more expensive. With Fannie and Freddie limited in the amount they could purchase, it meant lenders would have to hold on to these mortgages. By raising the rates and fees, it helped offset the risk. There were also additional lending requirements. To reduce the risk lenders might have to take, they increased down payments and added some underwriting requirements.
Now that the rule has been paused, we will see interest rates drop – at least for awhile. We don’t know if the FHFA will bring the rule back or maybe adjust it, it will depend on what they find in their review of the ruling.
What this does mean is if you were looking at buying or refinancing a rental property, you may want to talk to a loan officer and see if rates have dropped enough to make that refinance or purchase possible. Since no one knows how long this will last, it would make sense to contact someone soon! The Fed is also looking at pulling back on some of the bond buying they had been doing, this will likely cause interest rates to increase. So anyone looking to buy or refinance may want to follow up with their lender sooner than later!
Leslie Vanderwerf, NMLS ID#335509, Cross Country Mortgage LLC, An Equal Housing Lender, NMLS#3029 – Email – Website