🚨 HUGE RATE HIKES COMING ON 2ND HOMES AND HIGH BALANCE LOANS
FHFA released a bomb on Wednesday.
For loans sold to Fannie Mae and Freddie Mac after 4/1/2022, interest rate pricing will be dramatically higher for 2nd Homes/Vacation Homes And High Balance Loans.
The increase for 2nd / Vacation Homes is especially eye popping – around 1% higher on the rate for most loan to values.
A 2nd Home is a home used by the owner as a vacation home. Many clients also purchase these type of homes to use as an AIRBNB / VRBO also use personally for a certain amount of time each year.
What this means for consumers – if you were planning on buying that 2nd home in the woods or on the beach and using financing – try and get under contract asap.
Although the change takes place 4/1/2022 – most lenders will likely cut off current pricing at least 2 weeks in advance of that if not a month as it takes some time to sell the mortgage.
This means these loans will likely have to fund by 3/1/2022 or 3/15/2022 – not start. With most close of escrows being 30-45 days , the time is ticking to get the best deal on these properties.
High Balance Loans are present in certain areas of the country that have higher median home prices. Fannie and Freddie put together a conventional loan amount for the whole country every year. This amount is $647,200 for 2022.
In areas where most homes are much higher than that, they offer High Balance Conforming Loans above $647,200.
The pricing hits for High Balance loans will result in a rate increase of approximately .375% to .5% for most customers.
We saw some nice rate improvement last week, but those improvements were taken back this week. Fears over the Omicron variant, sent the stock market tumbling last week and mortgage interest rates improving.
This week, the news cycle is reporting less severity and more options to lessen the effect of the Omicron variant So the exact opposite is happening.
As a consumer, if you see a headline that will negatively effect economic production or consumer buying activity – you will see a similar trend repeat itself over and over again. The stock market will plunge, mortgage interest rates will improve.
If you see a headline report that could lead to increased economic production or stats that have shown economic improvement, The stock market will go up, mortgage interest rates will get worse.
Usually the rate improvements are short lived. Typically 2-5 days. This is when you want to take action specifically on a refinance to secure and lock in your rate.
See Mortgage Backed Security Market below – green movement up about November 28th is followed by red movement down December 6th. Green – better rates. Red – worse rates.
Overall, rates are slightly higher this week than last. Below is today’s rate sheet for well qualified borrowers.
Better.com is a mortgage start up that pitches better rates / a better loan process and has capitalized on the refinance boom over the past 2 years.
Just this week they cut 9% of their work force most likely caused by refinance production being down.
Many consumers don’t know the various mortgage company structures out there, so I wanted to take time to dive into this particular model.
Many companies or company divisions have what is often referred to as a “Power Banking” model.
A Power Banking Model typically involves these characteristics:
· Hiring Loan Officers with little to no experience.
· Training them and getting them licensed.
· Paying them very little per transaction – but funneling them a lot of opportunities through leads.
· Loan Officers are trained to sell a loan and possibly get documents from client
· Loan Officer is no longer involved in a transaction after loan is locked and docs are in.
From a consumer or buyer agent standpoint, there are a couple things to be cognizant of.
Inexperienced Loan Officers and Loan Officers trained specifically to sell and not advise often leads to poor mortgage advice.
An LO that doesn’t work off referrals and is not involved in the transaction from start to finish has no skin in the game, Nor are they motivated to give great advice as referrals aren’t necessary if said company is providing more than ample lead volume on a daily basis.
Think about this if you are buying a home and presenting your offer to a seller.
Good listing agents have worked with many different lenders and often know what to expect on the performance from a lender.
Would a listing agent/seller rather work with a Lender that is involved in the transaction from start to finish and gets the majority of their business by referrals generated because of high performance/great communication.
Or would a listing agent rather work with a Lender where the LO is not involved past initial sale and works primarily off new leads the company provides.
The reputation of a Lender can often be a deciding factor in whether an offer is won in a competitive offer situation.
As the power banking model tries to move into the purchase market due to refinance origination expected to drop 60% in 2022,
Consumers are going to see more and more competition in this space and I think it’s important to know who you are working with?
If I’m buying a home and shopping lenders, here are some non product questions I may ask: