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Second Homes Abound?

Have you noticed there are more second home purchases lately than we've ever seen? Many reasons why, migration from folks up north setting up their future retirement residence, or the impact of remote work allows flexibility in where you work. This dynamic makes second homes an alternative for a "working" vacation.

When it comes to second home loans and interest rates, there are two areas of "pricing" as it relates to interest rates.

  • There's the retail rate - the one the customer gets on their loan's Note. This is the rate offered by the lender/loan officer.

  • Then there's the wholesale price which is how lenders decide what rate they can offer. Wholesale pricing, like any product, has to do with what does it cost the retail lender to secure the loan at the given rate. They take the wholesale price, add their required profit margin, and offer the client their loan interest rate for the Promissory Note they sign at closing.

The "powers that be" have decided to increase the wholesale pricing for Second Homes loans specifically. Nothing is affecting a primary residence. Second home loans historically have offered almost the same as a primary in most instances. But now a second home loan will be a higher rate, although likely not as high as an investment occupancy mortgage rate.

The Federal Housing and Finance Authority (FHFA - this is NOT FHA/government loans from HUD) is a regulatory agency that oversees Fannie Mae and Freddie Mac as to their lending practices. Specifically, this agency has supervision, regulation, and "housing mission" oversight over the private agencies: Fannie Mae and Freddie Mac. Thier actual role is as the conservators of Fannie Mae and Freddie Mac. This authority over is a result of the housing crisis in 2008 when these entities were teetering on default (see Housing and Economic Recovery Act of 2008).

Fast forward to now and starting in April 2022, when Fannie Mae and Freddie Mac purchase a closed loan in the secondary mortgage market, they are charging more for second home occupancy loans. Why? Well that's a more complicated response, but it has to do with the FHFA's interpretation and influence over these entities lending practices.

How much more will a second home loan rate be? That isn't finalized yet, we have been given a range of "impact fees" to expect. But since this change is going into effect for DELIVERY of loans to the agencies in April. We expect to see our wholesale lenders/investors pushing the rate change into loans closing in late February or March. It takes a bit for the lender to move the loan in the secondary market, so each bank/lender may choose a different time to implement the fee increase so when they start delivery of the affected loans in April, they will not lose money.

I doubt this will significantly influence the second home Buyer away from making the purchase decision. But we are all more valuable to our clients when we increase our knowledge base of relevant and accurate information.


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