Was in the process of purchasing a investment property and the residential bank notified us of the new policys that were put out last Friday restricting residential loans from 3.2% to 7% for investors.  

  anyone know the reason for this move?  Could they be preparing for a crash?  That is a sizable rate hike overnight.  

@Robert Madison can you provide more detail? Are you talking about interest rates or down payments? 

Hi @Robert Madison I did some research into this. They aren't referring to interest rates (thank the Lord... my heart dropped). This is actually a tightening of underwriting standards, and the restriction you mentioned is in terms of the lender's portfolio. In essence, regardless of what a lender's investment property deployment was, it now has to be 7% or less of their lending pool. 

That implies that the market for loans is going to get competitive. Are they expecting a crash? It depends on what part of the country you are looking at. From a pure price index standpoint, some are picking up momentum while others are peaking--the exact place in the cycle is different for each metro. 

If you were worried about interest rates jumping 2-3x, rest assured. That would grind investment activity to a halt, which equals very bad news for national savings and GDP growth. They are slowly hiking rates from these artificial lows, but this will be 25 or 50 basis points over the span of quarters.

7% is the amount of investor loans that can now be packaged into a mortgage bond. 7% is not the interest rate.

Investor rates were too low as it was to account for the amount of risk that they were, and that risk increasing.  Investor rates were below what owner occupied rates were a year ago.  That was no consummate with the risk in these assets.  

Will the inevitable rate jump that occurs from this be bad for investors? Absolutely.  But rates being as low as they were was always going to be a temporary thing. They are just going to rise quicker than we all expected. 

Originally posted by @Chris Davidson :

@Robert Madison can you provide more detail? Are you talking about interest rates or down payments? 

Hi Chris i have been told by 3 different residential lenders today that the new rate is around 7% for residential investment properties. 

Originally posted by @Andrew Eherts :

Hi @Robert Madison I did some research into this. They aren't referring to interest rates (thank the Lord... my heart dropped). This is actually a tightening of underwriting standards, and the restriction you mentioned is in terms of the lender's portfolio. In essence, regardless of what a lender's investment property deployment was, it now has to be 7% or less of their lending pool. 

That implies that the market for loans is going to get competitive. Are they expecting a crash? It depends on what part of the country you are looking at. From a pure price index standpoint, some are picking up momentum while others are peaking--the exact place in the cycle is different for each metro. 

If you were worried about interest rates jumping 2-3x, rest assured. That would grind investment activity to a halt, which equals very bad news for national savings and GDP growth. They are slowly hiking rates from these artificial lows, but this will be 25 or 50 basis points over the span of quarters.

I read a few news articles that look to be as you say.  However i have been told by 3 different lenders today that the interest rate is now 7% for this type of residential investment loan.  One of those we had just talked to yesterday told us 3.2% and when called back today after hearing about the new rules from another lender they said yes they just heard about it and the rate is now going to be around 7%.  It is quite possible they all have it wrong but its what they are quoting me currently.  My state tends to be very behind the curve on things tho.

It could actually be a good thing for investors as it will limit the ever increasing pool of new/stupid money willing to overpay. And it is only for conventional loans. The index priced stuff probably won't move nearly as much. I may regret saying this but I'm kinda psyched.

@Robert Madison the people who told you this are just wrong.

@Robert Madison ,

@Russell Brazil just posted a clear explanation Here.