CHLA decries 3% caps for some on Fannie vacation home, investor loans

The Community Home Lenders Association on Wednesday called for a rollback of additional limits certain of its members will face on single-family loans backed by investment and vacation properties starting in July.

In a letter sent to public officials, the group protested a directive sent to some unidentified companies by government-sponsored enterprise Fannie Mae to cap their sales of mortgages at 3% starting next month. Fannie and fellow GSE Freddie Mac each face a limit of 7% for these purchases over the preceding 52-week period as directed by Treasury directives put in place earlier this year.

“This draconian action seems wildly disproportionate to the ostensible 7% GSE-level cap in the January agreement,” the CHLA said in the letter.

The letter sent to Fannie Mae, the Federal Housing Finance Agency and Treasury adds to an outcry over the changes made to the GSEs’ preferred stock purchase agreement and signs that its mandates can be tough to meet. The FHFA originally incorporated limits on the purchase of certain loans in order to strike an agreement with former Treasury Secretary Steve Mnuchin that allowed Fannie and Freddie to keep retaining capital and building earnings. The GSEs have had ties to the Treasury since they were brought into conservatorship in the wake of the Great Financial Crisis.

Fannie had warned lenders in March that it would be “monitoring deliveries of second home and investor loans on a lender-level basis” and would be “working with” those that had “excessive” sales above the 7% based on year-to-date unpaid principal balance. The GSE had asked mortgage lenders with deliveries in excess of that amount to try to adjust their volumes by June 1. On average per unit basis, roughly 10% of all loan applications have been for a non-primary residence in the past year, according to the Mortgage Bankers Association.

Freddie Mac also recently set a lower limit for purchases of loans backed by second home and investor properties starting in July but the change is less drastic. That limit is 6% or 6.5%, depending on whether lenders meet certain other volume criteria. Freddie is cc’ed but not directly addressed in the CHLA’s letter.

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Second home sales in particular rose to record highs amid the pandemic, when social distancing restrictions and work-from-home policies made them more attractive; but with vaccine distribution opening up the economy back up and the new caps in place, they’ve cooled recently. The number of buyers who locked mortgage rates for second homes was up 48% year-over-year in May, according to Redfin’s analysis of data from Optimal Blue, an affiliate of Black Knight. While Redfin’s numbers indicate demand for vacation properties is still high, they also show that May was the first month in a year that the annual growth rate dropped below 80%, suggesting demand is returning to pre-pandemic levels.

The association’s latest protest related to PSPA change calls for a rollback not only for the cap on loans that secure vacation and investor properties, but also the cap on “higher risk” loans that have lower credit scores, and higher debt-to-income or loan-to-value ratios. While financing for second homes and investment properties may not support Fannie and Freddie’s affordable housing mission, loans with “higher risk” characteristics are generally considered in line with it.

“These loans are vital, since they are critically important for access to mortgage credit for minorities, lower income and other underserved borrowers,” the CHLA said.