On January 11, 2016, the Federal Housing Finance Agency (FHFA) released a new rule amending its regulation on membership in the Federal Home Loan Banking system. As the regulator for the Federal Home Loan Banks, FHFA decides which institutions are eligible to get the benefits of FHLBank membership, which include low cost financing for lenders in the housing sector.
By eliminating “captive insurers” from the definition of insurance company, FHFA has prohibited many private lending institutions, including mortgage REITs, from being able to compete on equal footing with member banks and insurance companies that make residential mortgage loans. Unfortunately, very few, if any, FHLBanks are active in lending to investor owners of single-family rental properties. Instead these institutions focus their lending programs on owner occupied properties. Therefore, the FHFA is creating another financial incentive for homeownership over renting.
The problem is that 43 million households in the United States are renters. By lowering the cost debt for owner occupied homes, those who can afford to purchase a home get, indirectly, a financial windfall. Renters, on the other hand, get no such Federal assistance.
The good news is that mortgage financing for landlords is now readily available from a number of private lenders (such as Colony American Finance), and on a much more limited scale from local banks and agency lenders. However, the cost of such financing remains higher than mortgage loans for owner occupied properties.
Let’s hope that Congress, which attempted to stop the new regulation in December, can pass legislation that may benefit the ever growing number of rental households; many of which can use the help.
Contact Colony American Finance for financing options for your real estate investment needs. We provide attractive long-term debt products for stabilized rental portfolios as well as credit lines for new acquisitions. For more information about how Colony American Finance can help grow your rental and rehab business, please call 844-223-2231.