Blog-Observing The SecondaryMarketing Impacts Of GSE Caps OnNon-Owner-Occupied Properties

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The recent announcement from Fannie Mae and Freddie Mac regarding caps on investment and second-home properties has already sent ripples through the mortgage community.

In separate letters to lenders, both agencies announced that there would be a 7% limit on the acquisition of these types of properties.

 

While there were no additional loan-level price adjustments (LLPA) levied by the agencies at this time, the 7% cap is causing headaches for secondary marketing managers. Not only do these professionals have to more closely manage the population of loans delivered to the agencies, but they are seeing other investors begin to follow suit, imposing their own caps and/or back off pricing for investment and second home properties. With the proliferation of bulk executions and decrease in assignment of trade/direct trade execution in recent years, understanding what investors are paying up or down for has become shrouded in mystery. With little to no rate sheets or LLPA grids to provide guidance on what investors are craving, it’s no surprise lenders are unsure how to adjust their own pricing and margins.

 

In the Secondary Marketing Technologies group, we review our entire client base to track investor performance compared to securitization execution to derive pay-ups for specific loan characteristics. As you can see in the chart below, we have seen investors back off of their bids over the last month across all products, but especially on investment and second homes.

 

Based on data from lender clients of Black Knight’s Secondary Marketing Technologies group, non-owner-occupied homes typically make up approximately 10% of lender originations. And, according to Black Knight’s loan sale data, the percentage of these properties has nearly doubled since the middle of 2020.

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