Originators May be Overlooking This Niche

A housing industry that remainsrnfocused on originating safe primary mortgages may be overlooking a new purchasernmoney niche “ready for the tapping.” rnAccording to Fannie Mae’s HousingrnIndustry Forum, second home mortgages may be safer loans, with lowerrndelinquency and default rates than is found in the traditional primary homernmarket.</p

Necole Peralta, writing for the Forum says that while many homeownersrncontinue to struggle with payments on their mortgages, those with means arerntaking advantage of low interest rates and stagnant inventories to purchase arnsecond home in vacation markets.  Salesrnof homes that are neither primary residences nor investment properties havernaveraged 4.76 percent of sales over the last 16 years but there has been arnrecent uptick in those sales.  ThernNational Association of Realtors (NAR) found that vacation home sales, whichrnexperienced a severe decline in the housing downturn, jumped 29.7 percent fromrn553,000 in 2012 to 717,000 in 2013.  </p

NAR says in its 2014 Investment andrnVacation Home Buyers Survey that “A diverse set of buyers and property types comprise thernsecond-home sector and opportunities for second-home buyers exist in nearlyrnevery market, even in nontraditional, non-resort markets.”  NAR identifies an average buyer as being 47rnand in a two income household.  At leastrn61 percent use a mortgage to purchase their second home and downpayments tendrnto be large.  </p

Peralta said these buyers may present a new and<bunder-tapped opportunity for servicersrnand lenders whose main post-crisis response has been to tighten creditrnstandards, keep loans on their portfolios longer and increasernsecuritization.  While the tendency is tornoriginate loans with very high credit scores which in theory present littlerndefault risk, a sound loan and a good credit score can turn on a dime in thernface of job loss and extended rnunemployment in the current volatile job market..  </p

Fannie Mae’s Economic &rnStrategic Research group (ESR) recently examined second home data and foundrnthat second home mortgages tend to be safer loans, with lower delinquency andrndefault rates than other purchase mortgages. </p

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Geographically, the majority ofrnsecond home purchases correlate to areas that experienced a higher decline inrnhome prices during and after the recession. rnFlorida, California, and Arizona each experienced home price declines ofrn40 to 46 percent between 2006 and 2012  An abundance of lower-priced properties nowrnmakes these states the top three for second home purchases, accounting for 34rnpercent of such mortgages originated last year.</p

FanniernMae’s Business Analyst David Kopita says, “Byrncombining financial wealth data with home price and population data, findingsrnsuggest that the outlook for second home sales is positive in the near term, asrnthose who have enjoyed appreciation in financial wealth now find themselvesrnable to buy homes in popular second home destinations at a comparatively lowrncost.”  “Further, as the populationrncontinues to age in the coming years more people will find themselves in thisrnposition, assuming investment patterns remain similar,” he adds.</p

Of course record low interest rates,rnnot necessarily always a boon to persons of means, is another positive factor feedingrnsecond home sales.

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