Are rates jumping for second home and investment mortgages?

Per Mortgage News Daily mortgages on second homes and investment properties are about to become more expensive:

FHFA (Fannie Mae’s and Freddie Mac’s conservator) announced March 10 that they are limiting new loans secured by second homes or investment properties to 7% of the overall loans they purchase (roughly HALF their historic levels!), effective April 1.  What does this mean to borrowers seeking investment/2nd home mortgages? Turns out, it means A LOT.

While FHFA did not add any new “loan level pricing adjustments” (the fees borrowers pay for various perceived risk factors) in the announcement, many mortgage lenders added (or will soon add) substantial costs to these loans. For example, Penny Mac (who buys large numbers of Fannie/Freddie loans from originating lenders), immediately added a 2.25% cost to new 2nd home mortgages, regardless of equity. The pricing adjustment for a new investment property loan with less than 25% equity rose to a staggering 5% of the loan size ($10,000 on a $200k loan!).

What will the real world effect be of this?  Overall, if a mortgage cannot be sold to Fannie/Freddie I would expect rates to be higher for that mortgage.

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About The Author
Are Andresen

Are Andresen is the principal broker owner of Soldsense Realty LLC. He is also an experienced property investor and help clients find and manage properties in Northern Virginia.