A blow for mom and pop investors
Freddie Mac rates climbed past the 7% mark, landing at 7.09% Thursday.
But as bad as that is for borrowers, it’s looking much worse for those who seek financing for an investment property.
In January, the Federal Reserve Bank of Philadelphia published a study on owner-occupancy fraud and mortgage performance. The study of mortgages from 2005 through 2017 by Fannie Mae and Freddie Mac of bank portfolios and private securitized mortgages found that onethird of investors were committing occupancy fraud — that is, borrowers were misrepresenting their occupancy status as owner-occupants rather than investors.
But deep in the data of the study, I confirmed a hunch I’ve long had about mortgages and property investors. Risk, by and large, is low for properties that are mortgaged by legitimate or “honest” investors.
And yet, despite that risk, Fan and Fred charge exorbitant fees for mom and pop investors. Here’s how it works … Mortgage originators package loan applications and related documents. Mortgage lenders underwrite and fund the loans. Fannie and Freddie may opt to buy the closed loans from the lenders.
In those cases, Fan and Fred provide pricing to the lenders. They use a very sexy name for this, though I think it’s certainly disingenuous, calling it riskbased pricing.
For example, I priced out a $750,000 single-family property, assuming 20% down for a loan amount of $600,000 and a 740 middle FICO score.
The 7.5%, 30-year fixed, owner-occupied mortgage cost the borrower $966 in loan origination points. Compare that with the identical 7.5% rate costing $21,966 for the investment property purchase. Fannie charged $21,000 more for the rental (Fan and Fred usually offer nearly identical pricing).
Can you say highway robbery?
A Newport Beach midcentury house, built on 2.7 acres of horse property that looks out over 2 miles of scenic Back Bay to the Newport Dunes, has hit the market for $32 million.
The 5,872-square-foot house sits at the end of a gravel driveway with five bedrooms, six bathrooms and an open floor plan with floor-to-ceiling windows. Modernist architect Philmer J. Ellerbroek designed it as the family residence of late real estate developer and philanthropist Harry Rinker.
Since its completion in 1966, the house has remained in the Rinker family, which has maintained it. There are a formal sitting room, a game room with a half-vaulted exposed beam ceiling and a multipurpose space with conversation areas, a pool table and a bar that opens to the outside.
The primary suite occupies an entire wing of the house, with views of Back Bay and the grounds. There are a pool and spa, meandering pathways, and an artificial lake that teems with bass, bluegills, crayfish, bullfrogs and different species of birds, including bald eagles, osprey and snowy egrets. Migratory Mandarin ducks first introduced by Harry Rinker 55 years ago flock to and from the property.
So said Rod Rinker, an
Idaho-based developer and the oldest of two boys. Speaking by phone, he recalled how the yard enclosed by a 12-foot chain-link fence covered in climbing vines provided an idyllic backdrop for childhood adventures.
“We were allowed to just run around the yard barefoot all day long and investigate anything that caught our interest,” Rod Rinker said. “We built forts and played army. We fished and were taught to swim at a very young age so we wouldn’t drown when we fell into the lake, which happened all the time when we were chasing frogs.”
It also suited his father. Near the home’s entry gate, a stable converted into a garage recollects why Harry Rinker, whom his son described as “a country boy at heart,” snapped up the lot that once held only an old adobe house and