FHFA Announces Targeted Increased for Second Home and High Balance Loans
On 1/5/2022, the Federal Housing Finance Agency (FHFA) announced that there will be targeted increases to Fannie Mae and Freddie Mac’s upfront fees for certain high balance loans and second home loans. The announcement additionally laid out the timing for when the new fees will go into effect which will be for deliveries and acquisitions beginning 4/1/2022 (“Effective Date“).
FHFA’s Acting Director Sandra Thompson stated in the release that, “[t]hese targeted pricing changes will allow the Enterprises to better achieve their mission of facilitating equitable and sustainable access to homeownership, while improving their regulatory capital position over time.” Director Thompson further commented that the April 1 Effective Date was put into place “in order to minimize market and pipeline disruption.”
As of the Effective Date, originators and lenders will see an increase in upfront fees for high balance loans (also referred to as super conforming loans) between 0.25% and 0.75% which will be tiered by the loan-to-value percentage. Additionally, second home mortgages will see an increase in their upfront fees that range between 1.125% and 3.875% which will also be based on their respective loan-to-value percentage.
We have heard that many lenders have plans in place to begin implementing the increased fees on longer term rate locks (i.e., 6o day lock periods or greater), but as the time gets closer to the Effective Date, the fee increase would likely be applied to those loans locked for 30 days and greater.
As many may expect, the effect of this will likely increase the demand for certain non-qualified mortgage products (“Non-QM“). As some may think, Non-QM loans are not just merely for credit challenged buyers which many refer to as sub-prime loans. Instead, they can be used to fill the financing void created for those borrowers which fall outside of guidelines set by Fannie Mae, Freddie Mac or through other agency programs such as the Federal Housing Administration (“FHA”), the Department of Veterans Affairs (“VA”), and USDA Rural Development through their USDA Single Family Housing Guaranteed Loan Program.
Moreover, originators need to focus on strengthening their referral network, focus on activities that generate purchase business, and continue to work on systems that will help to create a repeatable referable business model that provides value to their customers.
Sean A. Stephens, Esq., CMB®
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