Why Some Investors are Troubled by Current Refinance Fees
In this blog we are going to explain a major change that was instigated by Fannie Mae to all loan wholesalers in early 2021.
As mortgage rates have continued to drop to all time lows over the last couple years, many investors were able to increase their cash flow through refinancing the mortgage into a lower interest rate.
This particular dip was major and just about every investor was able to shave a point or more from their current rate. That combined with the time frame of the dip March 2020 to present really allowed investors to shift their entire portfolio into record low rates in the mid 3% range.
Those factors combined, created a glut of investment loans being refinanced and sold to Fannie Mae; I personally locked an investment loan at 3.25% fixed for 30 years.
The biggest issue was that many wholesalers capped their interest rates at 3% as the highest rate they offered to all their mortgagees, while some others did not impose such strict restrictions to their mortgagees.
Second Homes and Investment Properties Affected
This created a new problem where a wholesaler’s ratio of second homes & investment properties started to get very high. I know personally that we sent 100% of our investment loans to the same wholesaler while only sending them 10% of our primary residence mortgage business. I assume many brokers and lenders did this same thing.
The ratio of second homes & investment properties to primary residences started reaching levels that were not healthy for a mortgage portfolio given the higher risk associated with 2nd homes & investment properties. Fannie Mae issued a new guidance to all their wholesalers stating that they were only going to allow 7% of a wholesaler’s portfolio to be purchased as 2nd homes & investment properties.
When a lender wants more or less of a certain loan type in the mortgage world, they play with pricing (the price placed on each interest rate they offer, also referred to as discount points). For instance, the adjustment made to pricing for an investment property in January 2021 was 2.25% after Fannie Mae made this announcement, that adjustment was immediately bumped to 4.25% for about 75% of mortgage wholesalers. That was just the beginning, as wholesalers tried to shift their portfolio, some of them were still getting too many investment property refinances and have since increased that adjustment to as high as 6.25%.
If you have any mortgage-related questions Think Blink and give us a call at 713.462.5465 today and let us help you get the best rate and make the process easy.