The Federal Housing Finance Agency (FHFA) Thursday issued a request for input related to government-sponsored enterprises Fannie Mae and Freddie Mac's eligibility requirements for mortgages in condominiums, cooperatives, and planned-unit development projects that have short-term rentals, operate with services and amenities similar in function to hotels and motels or may be considered vacation or transient housing.
FHFA in a press release said feedback will help it determine whether changes or clarifications to GSE policies are necessary to ensure more accurate and consistent project eligibility assessments.
Last year, each enterprise separately updated short-term and vacation property policies, reportedly making getting a mortgage for a vacation-type dwelling more difficult. But FHFA says it has received input indicating confusion about how sellers should best determine whether projects comply
with existing requirements.
While Fannie Mae and Freddie Mac's policies for short-term projects are similar, there are some differences between how each determines project eligibility. FHFA says it is trying to understand how these issues may impact eligible loan deliveries that comply with the GSE's charters and how the differences in policies might be contributing to industry confusion or processing inefficiencies.
“Today’s RFI will help FHFA take the appropriate steps to ensure that all sellers understand and apply the enterprises’ eligibility requirements in a way that minimizes repurchase risk and the risk to the enterprises,” FHFA Director Mark Calabria said.
The RFI contains the following questions for stakeholders:
- What revisions, if any, would you recommend to Enterprise requirements to better enable sellers to make accurate and consistent project eligibility determinations?
- Should the Enterprises define short-term rentals and transient use? If so, how should the definition(s) separate projects operating as commercial enterprises from projects in which units are predominantly owned by primary or second home homeowners/investors who use the property themselves but may also rent it on a short-term basis? To what extent, if at all, might such definitions result in a tightening of project eligibility?
- Are there differences in the risks associated with lending in a project that is primarily characterized by short-term and vacation rentals compared to a project that has a large number of units owned by investors or second homeowners that are used for residential purposes but may be rented on a seasonal short-term basis? Please describe in as much detail as appropriate.
- Is there any data or evidence you could share regarding the performance of mortgage loans in projects that have short-term/transient rentals compared to mortgage loans secured by primary residences, second homes, and investment properties with long-term leases?
- How should a project that is comprised solely or largely of second home units and investment properties be evaluated? What additional documentation should be reviewed to determine risk?
- How, if at all, would providing mortgage financing for units in projects with short-term/transient rentals, consistent with Enterprise charters and guidance, impact access to credit, including for low- and moderate-income and first-time homebuyers? Please provide any relevant data or analysis to support your position.
- How, if at all, should appraisal requirements be modified or bolstered to address some of the unique complexities presented by the transient use and income-generating activities in condos, co-ops, and PUDs?
- How, if at all, should appraisal requirements be enhanced to better enforce existing appraiser independence requirements for analysis, conclusions, and reporting (which may include comments that identify a project characteristic that could affect the seller’s or Enterprise’s determination of project eligibility)?
- How should sellers prevent and detect occupancy fraud on mortgages for project units that are used for vacation or short-term rentals (e.g., borrower claiming primary or second home occupancy when the intended use is for short-term rental)?
- How, if at all, are neighborhood property values impacted as short-term rental properties expand nearby?
- Do you have any additional feedback on the issues and questions raised by this RFI?
Those who wish to offer input should do so no later than July 5, 2021, according to FHFA. Comments should be submitted electronically or via mail to the Federal Housing Finance Agency, Office of Housing and Regulatory Policy, 400 7th Street SW, 9th floor, Washington, D.C., 20219.
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