Lenders knew government-sponsored businesses had to limit purchases of single-family loans backed by investor homes and second homes, but didn't necessarily think this would begin anytime soon.
April 1 Eligibility Criteria Fannie Mae announced Wednesday that an amendment to GSEs' preferred stock purchase agreements made by former Treasury Secretary Steve Mnuchin will limit purchases to 7% within 52 weeks.
This worried mortgage companies because they believed that alternative investor prices might not be as cheap as Fannie's.
"Pricing could be a pretty sharp drop from GSEs," said David Battany, executive vice president of capital markets for California-based Guild Mortgage.
The 7% cap essentially requires GSEs not buy more than they are currently buying. However, the impact can vary by company based on how much of this type of business they run.
"We will monitor deliveries of second home and investor loans at the lender level," Fannie said in the letter, noting that they will "work" with those who "have excessive delivery volumes of these types of loans."
Fannie said she would contact the Federal Housing Finance Agency for advice on the matter. The FHFA added the mandate to the plans for the GSEs to reach an agreement with Mnuchin that would allow Fannie and Freddie to continue holding capital and building profits. The Treasury Department did not immediately respond to a request for comment.
Fannie's rival Freddie Mac will also be restricted on second homes and investor properties due to the PSPA change, but had no response to inquiries that were available at any given time.
Limits on this type of loan could be especially problematic when it comes to vacation home loans. Interest in them has boomed due to the pandemic and the way consumers use them may be in transition.
“How do you define a second home? People are rethinking that, ”said Brian Koss, executive vice president of Mortgage Network, a lender based in the eastern US state. "It's a confusing time to do this and it will be interesting to see how flexible you get."
Another question lenders had asked in connection with the policy was whether the revenue the GSEs could lose by capping these loans could result in Fannie and Freddie charging higher guarantee fees.
"I think these loans are cross-subsidizing normal production, so the jury still has no idea what upward pressure this could put on your standard G-fee," said Matt Garlinghouse, executive vice president of capital markets, Cherry Creek Mortgage.
While the early start of the change by the GSE is understandable, asking lenders to cut their individual filings by April could be a big challenge, Battany said. It might be more manageable if they make the change by approving fewer loans of this type, he added.
“To move some of these loans from the GSEs to the private market, you have to give them time to set that up. I understand, ”said Battany. "But from a lender's point of view, this is extremely short-term."