The Bibel Team: Pricing on Non-Owner Occupied Homes

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Hey everyone. Eric Bible with the Bible team coming at you today with some information around pricing on non-owner occupied homes. If you like the information that you’re seeing here today, you’re hearing here today, please like, subscribe, comment.

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There have been some significant changes in interest rates that clients are receiving in what are dubbed as non-owner occupied property. So, your second homes and investment properties. We started experiencing this in the late end of the first quarter of 2021. And it was really on some of the delivery mechanisms of how mortgage originators deliver into the ultimate housing facilities for these loans in the secondary markets. Ultimately, how they’re insured and ultimately sold to investors after the fact Before, as an originating bank, you could have 15% of your pool go as non owner occupied. Meaning I do a hundred loans, 15 homes can be secured as non-owner occupied. Well, early part of 2021 federal housing finance agency came out and said, Hey, we want to lower that requirement to 7%. So again, a hundred loans originated now only 7% can be delivered as non-owner occupied. And by delivery, Fannie Mae, Freddie Mac, two government sponsored enterprises. They’re the entities that are ultimately insuring these financing apparatuses to the lender or servicer that in the event of default, they are protected.

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So they’ve come out and said, we only want to limit how much we’re securitizing and insuring to help reduce our risk. So with that from an origination side, so the banks that are providing these loans, they now have to drastically reshape how these loans are secured and ultimately sold in the secondary markets. What happens? We see interest rates rise. So rewind to March, 2021 interest rates for second homes, investment properties, we saw spike pretty much overnight. As soon as the information, the press release was issued it was within a very, very finite short period of time that lenders started cooking up or increasing the interest rates secured on those types of properties. Really the why behind it, specifically on second home is that in previous era, so pre Airbnb pre VRBO, you know, you as an individual would have to purchase that home with the ability to qualify for the rents on that home. Investment properties, you are qualifying with the rental income, were already experiencing a higher interest rate on those properties.

[Timestamp: 03:02]:

Well, with the introduction of Airbnb introduction of VRBO, basically vacation rentals at our fingertips, a majority of people purchasing second homes are banking on rents to now satisfy that payment. So from an insurability and risk perspective, if somebody is going into it thinking, I’m going to maybe stay here maybe two weeks out of the year, but the rest of the year, I’m just going to rent it. Well, now they become reliant on that rental income to now satisfy the mortgage payment. So from an insurability standpoint, the Fannie Mae, the Freddie Mac’s of the world, they are, you know, what happens if there is interruption in jobs or some sort of income stream? That now perpetuates the ability for potential default. So with those introductions there had to be combated with some mechanism to ultimately ensure that the risk was properly identified, insured, and accounted for. So with that, we unfortunately saw an increase to interest rate.

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Well, why we’re revisiting this again is there’s been some chatters, there’s not been official press releases from the federal housing finance agency that they further want to reduce that pool from 7% to now 3%. So why we want to get this information out is, and if there are buyers out there that are currently looking for investment properties, second homes, there is really no time like the present. If it kind of windfalls like it did in late March, it immediately happened overnight where we saw rates spike. So again, it’s, it’s been just a lot of chatter. It hasn’t been officially introduced as of yet, but like the first round it started as chatter. And within a week it was here. I don’t expect it to come that fast, but if you’re considering entering the market, looking at a refinance, looking at a purchase for a property that is either a second home again, or an investment property, definitely take action sooner, rather than later.

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We would love the opportunity to serve you. Please reach out to myself and my team today. Thank you.

 

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