During the pandemic, many people moved to a work-from-home structure and those that had the means to do so, began looking for a new place to call home and hold on to their current residence as an investment property. The demand for second homes increased during 2020 until the amended PSPA was announced in March of
this year.
On March 10th Fannie Mae announced the requirements for second homes and investment properties, stating maximum loans secured by these properties to be acquired will be 7%. On June 7th, Freddie Mac sent out a similar bulletin but only allowing the number of acquired loans to be maxed at 6.5%. For context, traditionally acquisitions on second homes and investment properties were around 15%
of portfolios.
Due to the amended PSPA loan eligibility and the revised QM rule, lenders began to add substantial costs to the borrowers’ loans. The additional upfront costs to borrowers added by lenders are ranging from .500 to 3.00 points to the loan. However, loan level pricing adjustments (LLPA’s) were not increased.
Many lenders are being more selective with borrowers they decide to work with. Borrowers with a large down payment, low debt-to-income ratio, and impeccable credit history will more likely get a lenders’ attention. Some lenders are simply restricting second homes and investments from being purchasable.
Florida condos have been historically purchased as a second home or as an investment. These properties were typically purchased at a higher rate than a primary property even before the amended PSPA. Now with the increased costs of these properties, the bidding wars seem to have halted.
If you have any questions on these fees or investment properties in general, don't hesitate to reach out to your Customer Success Manager for more information.
Here are some additional resources on this topic if you are interested: