Mortgage rates on second homes rise as Fannie, Freddie pull back

Only 7% of loans they buy can be tied to weekend or investment properties

National /
Apr.April 01, 2021 01:30 PM
New Fannie Mae and Freddie Mac restrictions mean higher mortgage rates for some. (Unsplash)

New Fannie Mae and Freddie Mac restrictions mean higher mortgage rates for some. (Unsplash)

Purchasing a second home during the pandemic may have seemed like a good idea with historically cheap mortgages available, but new changes are driving rates up for some buyers.

Fannie Mae and Freddie Mac have capped how many second-home loans it purchases, depriving many lenders of the government backstop they had been relying on to offer interest rates in the 3 percent range, the Wall Street Journal reported.

Now, no more than 7 percent of the property loans that lenders sell to either of the mortgage giants can be tied to second homes or investment properties, the publication reported. The cap is based on the overall dollar volume of loans they purchase.

Loans that cannot be sold to Fannie and Freddie have higher rates to compensate for the risk of holding loans on which borrowers might default.

Demand for second homes surged during the pandemic, thanks to the option to work from anywhere — be it a Hamptons cottage, Vermont farmhouse or Malibu beach home — and urban shutdowns. Mortgage applications for second homes were up 84 percent year-over-year in January, according to Redfin — more than double the increase for primary homes.

Second homes and investment properties don’t align with Fannie Mae and Freddie Mac’s missions to make home ownership affordable, officials at the Federal Housing Financing Agency told the publication. The agency, which oversees the two corporations, negotiated the changes with the Treasury Department.

Freddie Mac is already in compliance with the new limits. Fannie Mae has asked lenders to comply by June 1, the Journal reported.

[WSJ] — Cordilia James





    Related Articles

    arrow_forward_ios
    Celebrity broker Ryan Serhant is renting his Hudson Square penthouse. (Serhant)
    Ryan Serhant rents Lower Manhattan penthouse for $15K
    Ryan Serhant rents Lower Manhattan penthouse for $15K
    Birmingham and Bournemouth both saw a giant increase in demand. (Getty)
    Demand for rentals rises in UK’s largest cities in Q1
    Demand for rentals rises in UK’s largest cities in Q1
    This Arkansas compound  sits directly across from the University of Arkansas football stadium. (Getty, Realtor.com)
    Arkansas’ priciest home lists near Fayetteville football stadium
    Arkansas’ priciest home lists near Fayetteville football stadium
    Philip Falcone and his homes at 142 Crestview Lane in Sagaponack and  22 East 67th Street (Getty, Corcoran, Google Maps)
    Foreclosure on Phil Falcone’s homes can move forward
    Foreclosure on Phil Falcone’s homes can move forward
    BHS CEO Bess Friedman, Sotheby’s CEO Philip White REBNY head James Whelan, Douglas Elliman executive chairman Howard Lorber and Corcoran CEO Pamela Liebman (Getty, iStock)
    Broker fee ban an “error,” court rules
    Broker fee ban an “error,” court rules
    Christopher Riccio
    Christopher Riccio joins Douglas Elliman, bids Leslie J. Garfield farewell
    Christopher Riccio joins Douglas Elliman, bids Leslie J. Garfield farewell
    Brooklyn saw increases in prices, sales and inventory. (Getty, Two Trees)
    Brooklyn’s median sales price hit record high in Q1
    Brooklyn’s median sales price hit record high in Q1
    1440 Broadway and One Park Avenue (Google Maps, Vornado)
    These were the largest Manhattan real estate loans in March
    These were the largest Manhattan real estate loans in March
    arrow_forward_ios

    The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

    Loading...