Fannie Mae update to Rentals and Second homes

[Zach Wain]

Last night we were notified that Fannie Mae is making some changes to their Rental property and Second home purchases.  This morning we are getting more clarity.  There is not going to a standard LLPA (price hit) in addition to the ones already in place, but rather, Fannie Mae will not purchase rental property/second home loans from an individual lender when it makes up over 7% of their delivered loans to Fannie Mae.

Translation: Fannie Mae will warn lenders that excessive loans (more than 7% NOO/2nd) cannot be purchased. The net effect is that lenders who are anywhere close to 7% currently (and especially those over 7%) will be implementing substantial hits for NOO/2nd so as to keep their total delivery proportion to the agencies under 7%. This is brand new, so we are still figuring out which lenders will be impacted, or if this will be a non event and back to business as usual.

The current proportion of mortgage deliveries across all lenders is roughly in line with 7%. That means there may not be a huge impact on pricing by the time all is said and done, but in order to achieve that, there WOULD need to be quite a bit of reallocation from lenders with more NOO/2nds to those with less. Lender-specific pricing adjustments will be elevated in the meantime. Also, we should assume many lenders will want to avoid getting too close to 7%, so we should also expect the end-of-day net effect to be elevated NOO/2nd home LLPAs on average.