The days for that “sweet spot” are numbered.
You could also call it a rate hack
Nate Fain, branch manager at UMortgage in Pensacola, Fla., echoed Richardson’s assessment of the changes to the Fannie Mae and Freddie Mac single-family pricing frameworks, which take effect May 1. “I’ve seen the headlines, and I’ve seen how a lot of this has been portrayed,” he told MPA in a telephone interview. “Realistically, what’s happening here is there was a bit of a loophole – a rate hack, so to speak – and it was for people who understood it. It’s even a strategy that I’ve used in the past with my clients. It was a sweet spot in the rate sheet, and it was a great strategy for someone who’s got pretty solid credit and would pay, say, 15% down. It’s a loophole that’s going away.”
Even as a broker who availed himself of the hack on behalf of clients, he found the rate discrepancy odd: “From a high-level perspective, one of the things that was always strange to me was when you think of risk the way the rate sheets were, the way everything was priced out, it was actually cheaper for someone to put 15% down than someone who put 20% down. It was seen as something less risky. Most people, if you poll them would say ‘well, if you’re putting a bigger down payment, you should be rewarded – which makes sense. So, there was this little 15% hack where you would pay a little, tiny bit of mortgage insurance and get a better rate than if you were putting 20% down. I don’t feel like they’re subsidizing anyone. This is yet another loophole the FHFA has identified, and it’s closing.”
The FHFA doesn’t exist to help people build real estate empires, Fain suggested. “They’ve taken a pretty big stance,” he said. “They’re flat-out saying they’re here to support home ownership, not necessarily to help people build real estate portfolios. There are a lot of companies and investors building real estate portfolios. I’m not against that, I’m all for that. I am not against people building their real estate portfolios. However, when you’re using Fannie Mae and Freddie Mac products to do so, that’s not really what the intentions of those entities ever were. It’s always been the plan to get them back to ending that conservatorship. That’s always been the plan, and this is just another step in that direction.”
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