Comment
In my efforts to cover the housing components of the ever-changing stimulus package, I left some important news unreported this week.
Fannie Mae changed positions on the number of mortgages a single investor can have on one to four unit properties. Until last August, both Fannie Mae and Freddie Mac would purchase up to ten mortgages from the same borrower.
That policy was changed last summer in an effort to curtail bad mortgages. Of course, this was laughable. Most investors with that many properties are experienced professionals. They wouldn’t have purchased the Minneapolis duplex or fourplex in the first place if the numbers didn’t make sense.
Apparently Fannie Mae now understands this too. As Freddie Mac usually copies whatever Fannie does, look for similar news from them in the not too distant future.
Comment
If you’re planning on loading up on 1-4 unit investment properties during the down market, you’d better do it now.
In May, Freddie Mac made changes in its lending guidelines. As of August 1, 2008, a borrower may no longer have more than four financed 1-4 unit properties, including the one being purchased. What’s more, in order to refinance, the borrower must have owned the property for at least six months prior to getting a new loan.
Present Freddie Mac guidelines allow an investor to have up to 10 financed properties.
Until now, neither Freddie Mac nor Fannie Mae required a loan to be seasoned. This change will likely have the greatest impact on rehabbers and others intent on purchasing the property with the intention of refinancing to pull cash out.
The announcement of this change may help explain the recent run on properties priced under $100,000.
This will also effect owners who hold title as an LLC. If you own your property as an LLC, but need to qualify for a loan as an individual, you’re going to need to hold title as an individual for at least six months prior to a refinance. I know, I know. That appears to contradict what I said yesterday. You’re going to have increased liability exposure during this time frame; which you may want to address via an umbrella insurance policy.
So just get a loan from a lender who doesn’t resell conforming loans to Freddie Mac or Fannie Mae, right? Ha ha. That requirement eliminates almost all of them. Freddie Mac and Fannie Mae are privately capitalized, government sponsored entities that purchase the majority of conforming loans. They then repackage these loans and sell them as mortgage-backed securities to investors. This helps replenish the money supply of available money for mortgages.
Commercial loans will not be effected by this.
As the money supply grows ever tighter, I see the rebirth of the contract for deed on the horizon…
