REBLOG of Charles Dailey's: Second Home Underwriting Guideline Changes - A Clearer Picture
If you are not reading Charles Dailey's blog, you probably should be. You just might learn something about money. And money makes our industry move.
And, here's one point that jumped out at me, good news regarding market pricing of homes in many areas:
" The real killer for second home financing in the last two years has been mortgage insurance providers not insuring 2nd homes but that had changed in 2009. The reason for this change was that, in enough areas of the US, insurers felt that home values either had stabilized or were stabilizing enough for them to come back into that market. "
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I was updating my FeedBurner for OriginatorDigest.com and, as usual, I was looking for Bob Tedeschi’s weekly New York Times article as they’re usually fantastic and I’m an avid fan. His article Rethinking Vacation Homes comes so close to addressing the most important issues regarding 2nd home financing changes without actually doing so. I wouldn’t say that it’s Tedeschi’s analysis that’s off the mark but his sources fell short and failed to bring the most pressing matters and trends to his attention.
The article points out that Fannie and Freddie have changed their maximum loan to values available for second homes but defines these changes in a contradictory and confusing fashion. In one section it states that borrowers must have “down payments of 20 percent to qualify” and this is not the case and still won’t be going forward unless it’s a jumbo loan (see Freddie Mac’s Single-Family Seller/Servicer Guide, Volume 1, Chs. 22-28: General Mortgage Eligibility, Chapter 23: Maximum Loan Amounts and LTV, TLTV and HTLTV Ratios, 23.4: Maximum LTV, TLTV and HTLTV ratios (07/10/09).
In another section of the article, it states, “while Fannie and Freddie may sometimes allow lenders to offer smaller mortgages on vacation homes to those with down payments under 20 percent, those borrowers typically must have private mortgage insurance.” This is true but it’s misleading. For loans being delivered to Fannie Mae and Freddie Mac prior to February 1st, qualifying borrowers can finance up to 90% on a second home and after that, they can finance up to 85% on any non-jumbo loan which is $417,000 in most places. According to the National Association of REALTORS®, the national median sales price at the end of the 3rd quarter in 2009 was $177,900 for single family residences so I should hardly think that 417,000 dollars is a small loan.
The real killer for second home financing in the last two years has been mortgage insurance providers not insuring 2nd homes but that had changed in 2009. The reason for this change was that, in enough areas of the US, insurers felt that home values either had stabilized or were stabilizing enough for them to come back into that market. Tedeschi’s sources only knew of one mortgage insurance provider that would insure second homes and wouldn’t name them “for competitive reasons” which I personally think is inappropriately self-serving. Here are two of them: Genworth and Radian (Genworth and Radian will currently insure up to 90% subject to qualification and geography).
The tragedy in all of this is that, while the mortgage insurance companies are loosening their guidelines, now the agencies (Fannie Mae and Freddie Mac) are tightening theirs. One would think that since Mortgage Insurance Companies are private companies evaluating their risk-based decisions on forward looking trend lines that Fannie and Freddie would be paying close attention their conclusions. Fannie Mae and Freddie Mac are instead making decisions based on past loan performance which has little predictive value. This will have the effect of constraining financing for second homes and, in areas where vacation properties are common, it might hurt home values.
This is ridiculous and real estate professionals should be appalled.
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