Hello, LOs!
This past week's mortgage lender earnings provided a glimpse into the fallout resulting from the government sponsored entity caps on investor and second-home purchases.
If you remember, the caps arose from an agreement between the Federal Housing Finance Administration and the U.S. Treasury Department. It limited GSE purchases of single-family loans secured by investment properties or second homes to 7% of the GSEs' total single-family acquisitions.
To the industry's dismay, FHFA announced the limits just as demand for those properties was spiking. And it only got worse: While the limits were set to take effect in 2022, FHFA imposed lower caps and moved the implementation up for some lenders.
At the time, the Community Home Lenders Association called the restrictions "draconian."
Now we have some idea of how it played out with lenders. From what we can tell, it was chaos.
While the GSEs are a one-stop-shop for securitizing loans, the alternative is a complicated chain of aggregators, third-party securitization firms and accredited rating agencies, Joseph Mayhew, chief credit officer of Evolve Mortgage Services, recently told me.
"There were hundreds of billions in loans that needed a home, there were not enough third-party review firms and ratings agencies were not ready for the volume," Mayhew said. "They could not get the loans off their books fast enough."
At one point, Mayhew said, there was a three-month backlog of loans that needed to be sold.
And now there are signs that lenders are hoping to diminish their dependence on the agencies. Who could blame them?
Last week, Homepoint Financial reported a $73 billion net loss. Willie Newman, CEO of HomePoint, said the company has focused on building out their capacity to sell non-owner-occupied loans into non-agency execution.
"This is an opportunity for us to continue to grow above and beyond being dependent on the agencies," Newman said.
United Wholesale Mortgage CEO Mat Ishbia also responded to questions about how Fannie Mae and Freddie Mac's actions impacted its second-quarter performance, managing editor James Kleimann wrote.
"I can't control what Fannie and Freddie do and how that impacts our business," Ishbia said.
But Ishbia sounded a more positive note. Lenders can't predict all the GSEs' actions, but maybe they'll find themselves benefitting from future changes.
"I think [pricing actions] are short term and I think one day we'll be talking about a quarter where they got reversed and all of the sudden we picked up some money in a positive way," said Ishbia.
LOs, how did you see the impact of the GSE caps on second home and investor properties? Share your nightmare stories with me, anonymously, at gkromrei@housingwire.com
Georgia Kromrei
Senior Mortgage Reporter
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