New Fannie Mae and Freddie Mac restrictions
New Fannie Mae and Freddie Mac restrictions are already affecting lenders. The Mortgage Bankers Association special bulletin noted that FNMA and FHLMC have begun to implement the investor/2nd home caps. The MBA has seen the market for these loans deteriorate significantly. Investors have raised rate penalties by imposing loan level price adjustments. These adjustments seek to avoid getting an excessive volume of loans that the FNMA/FHLMC cannot purchase. A gap between the FNMA/FHLMC limits and the volume needed to satisfy underlying demand concerns lenders. But will private market participants currently have the capacity or resources to absorb the total gap? To understand how loan level price adjustments work and the impact, read Winning Mortgage, Winning Home.
Higher Risk Basic Home Effects
MBA harbors concerns that this same approach will be implemented on the higher risk basic home loan category. If the implementation takes the same path, similar market reactions may result. This implies a swift move to higher rates, tighter underwriting and reduced availability of credit for these loans. The higher risk home loan category predominantly serves first-time buyers and low- to moderate-income families. These limits don’t go into effect until January 2022. However, by prohibiting purchases above a yearly limit what will happen to rates and loan availability? Many lenders exceeded this limit every quarter in 2020 and before. Could that be as much as a 75% reduction in loans purchased from high volume lenders?
Additional options exist for the largest lenders. Their capital markets teams can sell loans in other ways. But those methods may also be more expensive or have higher interest rates. The market won’t know how these new Fannie Mae and Freddie Mac restrictions play out until late 2021 or 2022.