"why do owner occ rates go down as investment prop rates go up?!"

[Chris Mason]

This is an attempt to answer that question, I know a LOT of people have been confused by this. 

Consider the below fake rate sheet. Y is a high rate, W is a low rate, X.00% is the prevailing "par" rate. I can't put ACTUAL rates out there without violating some really good rules, so I'm putting letter placeholders in. :) You do not want Y.---% to be your rate, and you REALLY want W.---% to be your rate, but MOST people are getting X.---% for their rate, drop in what you think works for that!

Prior to coronavirus, X.00% was at a cost of 0.14% of the loan amount in points/fees/whatever, for you basic vanilla owner occ 800 FICO 20% down <$510k loan amount type scenario. 

And, oh look it's corona time, it's still basically X.00%, let's just pretend. 

When rates are low and there's a refi boom, the point gap between rates always gets thinner. It's a "thin stack" instead of a "thick stack." The baseline adjustment for "investment property" is 2.125%, the adjustment for "cash out" is 0.625%. There are others, but let's just consider those two.

To offset that investment property hit, we have to pick a rate that's at around -2.125% (or charge you ~2.125 points). Pre-corona, that's a bump to X.5%. Post corona, we have to go all the way to Y.25%!!! That's a 0.75% difference in rate! If it's a multi-family, tack on another -1% to the right hand two columns... now it's X.875% v Y.5%! Stack cash out AND 2-4 unit AND big loan size AND investment property, and you MAY just fall off the top of the rate sheet entirely.

Let's say it's an owner occupied SFR cash out refi loan amount below $510k. The "cash out" adjustment is 0.625%, plus another 0.25% or so for LTV. Call it 0.875%. Pre-corona, it's just a bump from X% to X.25%. Now, you gotta go to X.5%.

So, yeah, just throwing math at 'ya. Process it and ask questions! :) The exact numbers vary, but we see this EXACT same pattern across all 3 dozen lenders we work with, every single refi boom.