Investment & Second Home Lending Alert
Freddie Mac (officially the Federal Home Loan Mortgage Corporation) announced that on all loans delivered after August 8, 2008 it plans to restrict financing to second-home and investment real estate purchasers who have “individual or joint-ownership” interests in multiple properties. In the case of second-home buyers, they will be ineligible for new mortgages through Freddie Mac if they have ownership interests in more than a total of four properties securing debt, including the one they propose to finance.
Many of the following loan types are about to feel credit restrictions: 
•Mortgages to borrowers with scant information at the three national credit bureaus.
•Loans with anything less than full documentation of borrower income, credit and assets.
•Mortgages for certain second-home purchases.
•Cash-out refinancing
•Investment loan applications for a buyer who owns at least three other rental properties.
•Adjustable-rate mortgages where the first occurs within 60 months after closing.
•Short-term construction loans that convert to permanent mortgages.
These tighter guidelines include rental houses, rental condos and other investment properties, these properties will be ineligible if the borrower has ownership stakes in a total of four units. Previously, Freddie allowed investors to own up to 10 rental properties carrying mortgages.
Freddie Mac also announced new reductions in refinancings where the property had secured a “cash-out” refinancing in the prior six months. The company defines a cash-out as any refinancing where the replacement loan balance exceeds the previous balance by 5 percent or more. Recently, according to the company’s quarterly surveys, more than 80 percent of refinancings involved equity-depleting cash-outs.
Freddie Mac indirectly finances one out of every six homes in the US. The NYSE Company is a shareholder-owned, government-sponsored enterprise that, along with sister Fannie Mae, creates liquidity in the residential mortgage market by guaranteeing, purchasing, securitizing, and investing in such loans. The company, which is prohibited from originating loans, buys conventional residential mortgages from mortgage bankers, transferring risk from them and allowing them to provide mortgages to those who otherwise wouldn’t qualify. www.FreddieMac.com
Meanwhile, private mortgage insurers, who provide loss coverage for lenders and investors on loans where down payments are less than 20 percent, also are rolling back a variety of products, especially in areas they define as distressed or declining. For instance Genworth Financial one of the largest insurers, recently told lenders that it no longer will consider applications for second-home purchases anywhere in Florida after May 5. Also as of that date, Genworth will not touch cash-out refis, investment properties, non-traditional credit applications, construction/permanent loans or adjustable-rate mortgages with initial adjustments within the first five years in all “declining/distressed” markets.
PMI Group, another high-volume insurer, banned cash-out refis, limited-documentation loans and all mortgages secured by investment properties in “distressed” markets. In non-distressed areas, cash-out refis on second homes and rental houses no longer are not eligible for coverage, nor are interest-only loans on investment real estate and all mortgages on properties containing three to four units. PMI boosted minimum credit score requirements for “jumbo” loans nationwide to a 700 FICO and will require at least 10 percent down. MGIC, the largest private mortgage insurer, recently eliminated coverage nationwide of “option-ARM” loans that have scheduled or potential negative amortization features that increase, rather than reduce, borrowers’ principal monthly debt. In the boom years, option-ARMs were wildly popular in major metro markets. Many mortgage insurers will no longer insure cash-out refis using limited documentation, temporary rate buy-downs on investment real estate and non-traditional credit applications to buy second homes.
The investor loan marketplace is rapidly changing; YAERD.org and our partners are committed to working with the investor and lender communities to continually provide investor grade loan products in spite of tighter credit restrictions. Many investor groups are ignoring these changes and leading investors into real estate deals without having financing in place and wasting investors’ time and resources in the process.
For Lenders reading this alert the YAERD.org network is continually looking to expand our base of approved lenders for our national investor network. If you have unique investor and second home financing offering such as portfolio or private offerings we want to hear about your specific programs. 1-877-YAERD-70 ext 3 or email freeinfo[at]yaerd.org with your specific investor loan program and guidelines.
Robert Stec
YAERD.org Advisory Board Member
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