On January 5th, FHFA, the governing body which oversees most of the US mortgage market, announced substantial risk-based increases for second homes and high balance loans.
The announcement positioned the changes as an aim to strengthen government enterprises and make home-buying more attainable. Affordable home loan programs will not be subjected to the fee increase. Loans to first time homebuyers in high cost areas with incomes at or below 100 percent of area median income will be excluded as well.
What does this mean for you?
While second homes are often reserved for higher net worth borrowers, the advent of services such as AirBnB and VRBO have left many as quasi-investment properties. This has forced the industry to re-evaluate and instead rate them more as “risker” investment properties. Much of the changes help recognize this evolution, but those likely to be most impacted by these changes – higher income earners – suggest there may be other aspects in play.
High balance loans – those with balances between $647,200 – $970,800 in counties deemed “high cost” – may seem advantageous to only high income earners as well. However, the lowest priced single family home in these areas would often be out of reach without these limits. FHFA’s “carve out” of first time homebuyers from the changes is a bit deceptive as the median income limits in these areas are often insufficient to meet the qualifying requirements.
Given the possible impact to borrowers and mortgage industry volumes, expect to see sizable pushback from the industry. Bob Broeksmit, President and CEO of the Mortgage Bankers Association, said he “expected that this announcement would not be the last word on pricing adjustments, and that it sets the stage for reducing loan-level price adjustments for first-time borrowers, and those facing higher fees due to the loan-to-value ratio or their credit score.”
Key takeaway: The “delivery” date of April 1st, 2022 suggests changes may be seen as early as January 31st. So if you are in the market for either of these situations, get moving!
We can help you understand this new change. Contact us today!