A Macro Look At The 2021 Lending Market

construction financing conventional loans fannie mae & freddie mac financing a project lending multifamily financing real estate financing Nov 10, 2021
The Build-to-Rent Show
A Macro Look At The 2021 Lending Market

Topics Discussed:

  • A Macro Look At The 2021 Lending Market
  • New Fannie Mae & Freddie Mac Lending Guidelines

Watch the full episode here: https://youtu.be/rQ5CFQ4Gx5E

Lane Aldrich keeps his eye on the macro side of lending, as it pertains to conventional loans. Somebody gets a loan to buy a house and live in it, that's a conventional loan. And you can get a conventional loan and live in a duplex and rent out one side, or you could get a conventional loan and investor-owned a fourplex, not live in any of it and just rent it out purely for cash flow and appreciation purposes.  

Lane, we talk all the time about some of this stuff, and Fannie Mae and Freddie Mac, the main agencies got kind of cute recently on some of this, they've walked it back.  

What are you seeing on the macro level about the appetite for lending and anything unique that you feel is worth knowing?  

Lane Aldrich: In a lot of ways, and investors will know this, it has been a unique year in, in both home building home finance, the market in general lending did not go unscathed from some big adjustments from the new administration coming in. 

And assessing what needs to happen to try to create a healthier market for real estate, create opportunities, people that want to come in and purchase a home to owner occupy. And as part of that Fannie Mae and Freddie Mac are in conservatorship, meaning that they are essentially run by the treasury, even though they're publicly held, it's a unique situation. 

And as part of that, the treasury gets to dictate the type of guidelines and restrictions as part of their stock agreements for these entities. And there was a hidden clause in there that had been ignored for a long time that says for Fannie mainframe max overall portfolio, they really wanted to limit the scope of second homes and investment properties as a part of the overall lending that runs for their system. 

And they decided earlier this year that they wanted to enact that meaning that they wanted to keep the number of second homes and investment properties being financed and, and funneled through, these financing. Down to typically about 8% or less of their portfolio when it had been running a lot hotter than that for the last couple of years, particularly this year, there was a lot of money that came into business owners, through PPP loans, a lot of stimulus money. 

The people were more liquid than normal. And one of the first things they did was turn to real estate. I want another second home. I've got more money for investment properties, and that was straining home buyers’ abilities to come in and purchase homes. They, they decided to enact that guideline or enforce it essentially and got very aggressive with it instead of, “Hey, we're going to, we're going to phase this in over six months, 12 months, they came to lenders like First Colony or some of the larger banks that you would have heard of and said, Hey, you have got two months to wind down your investment, property financing. 

It hit everybody. It kind of caught everybody off guard and that was in March or April or so. And so, investment, property financing, you could. but it was offset by higher interest rates and lenders saying, “Hey, we want to do less and we're going to make the financing less attractive.” So that's what we dealt with a lot over the summer. 

And then something happened where the current administration said, we realize we want to create more affordable housing, and investors who are building and acquiring properties to create rental units create or help promote affordable housing because of inventory, right. So shocking revelation. 

Investors are good for the economy. They're good for housing. And it turns out when you restrict an investor's ability to get financing, you're also essentially restricting the ability to create or promote an environment for more affordable housing. And so, this new rule that they enacted in March has walked back about six weeks ago, where they came back and said, look, this was not as effective as we thought. 

And we needed to reverse. And so, this is a concern that I get that gets brought up with investors. "Hey lane, is there going to be financing for Fannie Freddie stuff? What about these two to four units?" I'm under contract on new construction for the time being. There's nothing to worry about that. And the market will always find a way. While that restriction was taking place, there there's a lot of new portfolio loans and different options were coming to market to absorb what Fannie and Freddie had walked away from. 

And so, if something like that ever happens again, the market's going to be more ready than. But that's a concern that gets brought up a lot. I'm happy to be able to come and deliver good news about that, that the environment for investment property financing, not only our rates in terms attractive, but the current administration and government officials recognize the need for the role that investors are playing here. 

Steve Olson: That's good. I keep thinking of Jeff Goldblum in Jurassic Park, " the market finds a way."  

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