Sharing Economy Shambles - Airbnb Hosts Having Difficulty Refinancing Homes

Tyler Durden's picture

Submitted by Ashlee Kieler via Consumerist.com,

Until recently, home loans generally covered two types of properties: primary residences or investments. That was before services like Airbnb allowed anyone with an extra room to make a bit of extra money by renting it out for short periods of time. This blurred line between “my house” and “my investment” is causing trouble for some homeowners when they go to refinance their mortgages.

More and more homeowners say they are finding themselves on the receiving end of rejection letters from their long-time banks when trying to refinance their mortgage, simply because they rent a room on Airbnb, the Wall Street Journal reports.

When applying to refinance their loans, owners say they were under the impression that having a higher income would improve their credit. So they reported all income drawn for short-term rental deals.

But banks don’t exactly see it that way, the WSJ reports.

Because short-term rentals made online through Airbnb are fairly new, banks are having a difficult time placing these homes in the two predefined categories.

The process of renting out one’s home or a room gives the impression that the house is now considered a rental, or an investment property.

And these types of properties have long been considered to be riskier for banks, as homeowners have shown a higher tendency to default on investment-property loans.

One Seattle man says his application to refinance his home’s loan through Bank of America was denied recently.

The man reported on the application that he had collected $30,000 last year from renting the cottage in his home’s backyard. The bank reportedly told him the request was rejected because it didn’t allow home-equity lines of credit on properties in which the homeowner is operating a business.

“Here’s a bank I’ve had a relationship with for 30 years,” he said. “The assumption to me was the more your income is, the less risk to them. That assumption was wrong.”

A rep for Bank of America tells the WSJ that it would consider a customer’s home an investment property if there was a “material amount of commercial activity,” but that “incremental renting” wouldn’t be an issue.

A similar situation played out for a San Francisco couple and Wells Fargo. When the pair wanted to refinance their home, which is active on Airbnb for half of the year, they were instead told to apply as if the home were an investment property. However, that came with a 0.5% higher interest rate.

A rep for the bank tells the WSJ that Wells Fargo has no policy of restricting short-term rentals on its borrowers’ properties. Still, the spokesperson says there can be some confusion and tiptoeing related to new Airbnb rentals and banks’ willingness to issue mortgages or refinance existing ones.

Banks’ unwillingness to provide refinanced loans or mortgages to properties drawing income from short-term rentals could be tied to the past housing crisis, the WSJ reports.

When a homeowner defaults on a mortgage, investors or the government could ask the lender to repurchase the soured loan. To avoid this fate, many banks are playing it safe — at least for now.

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BaBaBouy's picture

No Soup For You ~~~

Chris Dakota's picture
Chris Dakota (not verified) BaBaBouy Sep 8, 2016 1:14 PM

Ahahaha.......

Airbnb destroys businesses of normal type becuase they don't use them, raises rents and they don't vote.

San Francisco: The mayor will rule over hotel rooms

Cognitive Dissonance's picture

Non conforming loan bitches.

If the bank can't sell the loan within 30 days of closing, they don't want your loan. For many banks, holding paper is so yesterday.

847328_3527's picture

Rentals are not risky ... not risky, that is, until a tenant does $18,000 damage to your house like one did to my dad's rental when he lost his job, refused to pay rent and was asked to vacate.

Don't let anyone fool you, rentals are High Risk businesses and with property taxes and inrsurance rates soaring, be careful what you buy.

Oh yeah, don't forget repair costs and updating the house to meet all the city codes which change every year or so.

OceanX's picture

Maybe if he lived within his means and saved more, he would not be so dependent on refinancing...

 

No, that's just STUPID,  LEVER UP!

CheapBastard's picture

I love when a tenant threatens to kill you if you try to evict him, or even raise the rent.

 

Too bad these people in DC and Wall Street never leave their castles to see what life is really like out here.

Bush Baby's picture

The overwhelming air bnb transactions run smoothly

Why wouldn't the bank the positive aspect, that the homeowner has income with which to pay the mortgage?

chubbar's picture

I agree that there is risk. However, short term rentals like airbnb or a hotel room will fall under a different set of laws than a long term rental. A cop can remove a hotel guest or airbnb guest at the request of the owner, that rental doesn't fall under the same laws and the renter doesn't have the same court protections as the long term renter.

Abbie Normal's picture

All you need is one unsuspecting guest to bring bed bugs with them and you'll be out thousands of dollars to fumigate the entire house and replace most of the carpet and upholstered furniture.  Is that still worth charging $100/nt?

RaceToTheBottom's picture

Banks are transactional flowthrough events.

If you are still dealing with banks and not Credit Unions, you deserve to be bent over the barrel.

Killdo's picture

SF is the worst kept city I have ever seen and the dirtiest - especially when it comes to homless shitting on sidewalks across at least 60% of the city ...the whole city Smells like stale piss (I have never seen any other city in the whole world which smells like this)  - luckily not yet at the top of this hill I live on but it coming close. 

This is the only place where streets don't seem to ever get cleaned. I don't know what they do with the taxes we pay

Spungo's picture

New company: Airbbwnb. You get a fuck a fat chick then go to sleep.

SmittyinLA's picture

In America we call that marriage

TheVoicesInYourHead's picture

Renting of houses/condos/apartments for less than a month tenure needs to be outlawed globally asap.

Nobody wants to live next to a home with a bunch of transients coming and going daily.

King Tut's picture

So- who would pass that law- a World King?

LowerSlowerDelaware_LSD's picture
LowerSlowerDelaware_LSD (not verified) King Tut Sep 8, 2016 1:40 PM

Yes, Obama with a stroke of His pen...

NoDecaf's picture

New voice here trying to muscle in on MDB? That was a pretty lame post.

LowerSlowerDelaware_LSD's picture
LowerSlowerDelaware_LSD (not verified) NoDecaf Sep 8, 2016 2:24 PM

Does Obama not think that He is World King?

Whitmore's picture

It's covered in most local zoning ordinances. Some communities care more than others. The beach town I lived in was thinking about cracking down because it was hurting local established B&B/hotel business. It wasn't just airbnb, but lots of folks with unsanctioned vacation rentals.

pwrtrader's picture

^^^this^^^

Everyone always thinks that the sharing economy is great right up until the part where your neighbor decides to rent out their entire house for 3-5 day stints so they can make their monthly mortgage.

I've been trying to figure out an angle to curb their activity since the city has been slow to react and wondered if the lender side night be an option.  This actually gives me hope.

My neighbor's Airbnb activity really creates additional stress that I don't need.

Abbie Normal's picture

Some of my neighbor's louder "guests" seem to end up with one flat tire on their rental car.  Must be that darn sharp gravel that they park on....

rejected's picture

Banks worried about home owner defaults!

hahahahahahahahahahahhahahahahahahahahahahahahahaha.

What the hell do they think they did in 2008 when they came begging for their bailouts?

Banksters are stupid, dangerous and hypocrites.

oddjob's picture

Airbnb is great if you like having your house used as a brothel.

ToSoft4Truth's picture

I once had an extra month on an apartment.  I advertised to pimps on craigslist.  No takers. 

darteaus's picture

Quality Control Inspector?

King Tut's picture
King Tut (not verified) Sep 8, 2016 1:23 PM

I use my home as a meth lab- will that effect a refi?

SmittyinLA's picture

Depends on the fees, in your case has there been a meth lab* bust yet.

Meth heads OK, meth lab bust not* ok.

*some cities disappear meth lab busts to protect resale values

King Tut's picture
King Tut (not verified) SmittyinLA Sep 8, 2016 1:56 PM

No busts- the sheriff is my brother-in-law plus I bought him a ski boat for his birthday

Slurm's picture

Is this 'home' a motorhome? Do you cook in the desert?

monad's picture

Only if its in the Phillipines (and blows up)

NidStyles's picture

I thought Meth labs were a cash only business, so why would you be refinancing when you can just launder the money and buy outright?

King Tut's picture
King Tut (not verified) NidStyles Sep 8, 2016 1:48 PM

nobody carries cash anymore- even the meth heads use plastic

SilvaDolla's picture

My brother in law just found a way to turn $300 worth of ordinary household chemicals and turn in to $30k cash, in just 10 hours per week from the comfort of his own fume hooded home.

Eh?

SmittyinLA's picture

Bank will run into anti trust issues real fast, looks like they're forming a cartel.

CJgipper's picture

Why do you think they're buying so many shares in Hillary?  Lol

2ndamendment's picture

Here's a crazy idea. If you rent out a room on Airbnb, don't offer that information to your bank when you refinance. You are under no compulsion to provide it, so don't. 

NoVa's picture

that is the answer - don't claim the income.  the cases I've read all involve claiming rental income thinking the borrower is now more qualified.

Problems are income was not on the 1040, potential conflict with property zoning (single family versus multi), appraisal issues (appraisal now must consider an income approach), the GSEs audit the loans and will not buy - hence lenders will not lend since they don't want to own the loan. 

 

NoVa

 

monad's picture

Death to bureaucrats

darteaus's picture

Going through this now with BofA.

Their form only has 2 boxes: Primary Residence | Other.

This is the result of the Dodd-Frank regulations, so it's going to be a while before the banking kingdom can accomodate a different model.

drivenZ's picture

why wouldn't it be a primary residence? you can own a a 2 or 3 family and still claim it as your primary residence if you live in one of the units. 

Big Corked Boots's picture

BTDT, the bank still treats the property as multiple family income property.

Friedrich not Salma's picture

And if you're located in Miami Beach and advertise or rent on AirBNB, get ready for a $20,000 fine from the city for the first offense, $40,000 for the second offense and so on.
https://www.yahoo.com/news/miami-beach-cracks-down-airbnb-type-vacation-...

LowerSlowerDelaware_LSD's picture
LowerSlowerDelaware_LSD (not verified) Friedrich not Salma Sep 8, 2016 1:43 PM

My God...  Mind-boggling, Central Planing crushing people looking to make a living.

RaceToTheBottom's picture

“Here’s a bank I’ve had a relationship with for 30 years,” he said. “The assumption to me was the more your income is, the less risk to them. That assumption was wrong.”

 

Your faulty assumption was that risk drives interest rates....

Osmium's picture

So does he have a 30 year relationship with that bank because he's been paying for his house for 30 years?  If so, why the hell would

you need to refinance it?

Bemused Observer's picture

How are the Uber drivers doing with their auto insurance claims?

LOL! The "sharing" economy! And you thought they meant sharing the MONEY...lol!

Folks have GOT to start asking some QUESTIONS before trying these 'products' out. The OBVIOUS question to ask about, say, the Uber thing, is "Hey, what is that gonna do to my insurance/license if I just start using my vehicle for commercial purposes?"

The only thing most seemed to worry bout is the taxes...because they assumed it was the MONEY that was to be shared!

Nooooooo! It was all the OTHER shit! The regulatory burden, the administrative burden, the insurance burden...

Silly rabbits.

ParticularlyStupidHumanoid's picture

Is it legal to get a refi knowing you intend, LATER, to rent the house (presently your home) out?

Sokhmate's picture

If you can pass the pre-cog test at time of loan, you're fine.

Bunga Bunga's picture

Banks are even monotoring your social network/media activities. So be careful what you type. http://www.infowars.com/borrowers-hit-social-media-hurdles/