FHFA eyes rules to curb short-term rental risk

The Federal Housing Finance Agency is calling for input on how to better safeguard against potential lending risks associated with residential buildings filled with short-term rental units.

On Thursday, the FHFA requested public comment on questions related to mortgages in developments where a large share of units are rented for 30 days or less or are primarily used as vacation homes.

Fannie Mae and Freddie Mac’s overseer said condo, co-op, and planned unit developments used mainly for vacation rentals have characteristics commonly associated with hotels or resorts.

The FHFA said Fannie and Freddie’s policies are not designed to manage the range of risks at a single project. As well, “many sellers do not have the expertise to complete the underwriting required to manage risks that are commonly addressed through commercial insurance underwriting and appraisal practices.”

The regulator also asked for comment on questions including:

  • Whether property appraisals should change to reflect the complexity around short-term rentals.
  • How sellers can prevent occupancy fraud on mortgages for units used for short-term rentals if the borrower claims it’s a primary or second home.
  • What data show for the performance of mortgages in projects with many short-term rentals versus lending secured by primary residences, second homes, and investment properties with long-term leases.
  • What additional documentation is needed to determine risk for projects mainly made up of second homes and investment properties.

Interested parties are being given until July 5 to submit input.

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