One of our most lucrative and beneficial (for borrowers) loan programs is on the chopping block – and it will be both very costly and painful.
The program is called SPCP, which stands for Special Purpose Credit Program (SPCP). These are very low-rate mortgages that were supposed encourage lenders to fund loans in underserved areas.
Commercial banks are heavily incentivized to offer them, and we offered them through a relationship we have with Citibank.
Borrowers simply have to be moving to an “underserved area” (a census tract with lower-than-average incomes), and they can get a rate that is as much as 1/2% LOWER than the market rate.
Borrowers loved these loans because they often had no idea they were moving to an “underserved area” – and who does not love getting a rate that is 1/2% under market?
We love these loans because they allow us to offer extremely low rates, which makes us look like rockstars and prevents borrowers from shopping for lower rates.
These loans also enable us to compete very effectively against the thousands of loan officers who don’t have access to them.
As a result, we have been aggressively marketing these loans.
However, it appears that it will not last.
The new head of the Federal Housing Finance Administration (the entity that regulates Fannie Mae and Freddie Mac) – Bill Pulte – issued a letter yesterday stating that he wants to eliminate SPCP loans.
It hasn’t happened yet, but it now seems likely to happen.
Who This Hurts and Helps
Who This Hurts: JVM Lending and anyone buying in an “underserved area.”
Who This Helps: Everyone who is not buying a home now, everyone who is not buying in an underserved area, and ultimately, taxpayers.
We love these programs and we make good money from them, but we also recognize that they are subsidies that end up pushing up values that much higher for the next group of homebuyers – like I reminded readers in this blog: 3 Ways To Ensure Home Prices Continue To Soar (And To Make Sure Your Kids Can’t Afford Homes).
FHA Restricts Loans for Non-U.S. Residents
In the old days (e.g., last week), pretty much anyone with a social security number could qualify for an FHA loan.
But FHA recently tightened up their qualification standards, making many non-resident VISA-holders ineligible for FHA financing.
This too is very painful for JVM, as we have dozens of these borrowers in our pipeline right now.
Fortunately, though, those borrowers have until May 25th to find properties.
I should also add that we understand FHA’s perspective on this, as FHA borrowers have a significantly higher default rate, and FHA does not believe that the government (and taxpayers) should cover insurance costs for non-permanent residents.
Should We Expect More Restrictions?
Yes, we should expect more. Fannie and Freddie could possibly get out of the 2nd home, multifamily, investment property, and refi business – per Chris Whalen.
If that happens, credit standards (down payment, income, and credit requirements) will get tighter, and housing values will be impacted.
What to Do?
Buyers and borrowers who are eligible for any of these loan products should get in while the gettin’ is good. Because soon, the gettin’ will be gone.
We are of course letting our database know, as I type.
