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Chris McLaughlin wrote- Fannie Mae offers new financing option
"Remember how we all blamed investor/flippers using faulty
financing for the housing crash? You know, these are all the bad
guys who ran up home prices to their own profit, with no concern
for the inevitable fallout; they colluded with overzealous,
borderline blind, lenders who gave anybody and everybody a loan
with no attention paid to their ability to repay said loan.
That's all over now. You can't get a loan without pledging your
first born in collateral, and if you're an investor, you rank
somewhere just below Angelo Mozilo. Or do you? Last month Fannie
Mae made a little change in the rules for all-cash buyers to
apply for mortgages. I don't recall a press release, and I'm
quite sure I'm on their mailing list. But there it is,
'Announcement SEL-2011-5,' a 'Selling Guide Update:'
Currently, Fannie Mae requires a minimum of six months to elapse
between the time a borrower purchases a home and subsequently
applies for a cash-out refinance. The Selling Guide has been
updated to allow a cash-out refinance within six months of a
purchase transaction when no financing was obtained for the
purchase transaction. There are of course all kinds of
parameters, including maximum LTV (loan-to-value ratio),
documentation, arms-length transaction and 'all other cash-out
refinance eligibility requirements and cash out pricing applied.'
The mortgage cannot be larger than the value of the home of
course. Hands down, this is a boon to investors, who can now get
equity out of their investments faster. It's also a boon to home
buyers who couldn't compete in the long term with all-cash
investors, but who might be able to put down the cash for a few
weeks before obtaining a mortgage.
So is this a 'loosening' of standards that could fuel all those
nefarious investors of the housing boom? Wait, maybe today's
investors aren't so dangerous after all (as I've been saying over
and over). 'We continually examine our policies and standards to
determine what changes to make to better serve the market, and
this is one of those changes,' said Fannie Mae spokesman Andrew
Wilson. 'There is a role for everyone in stabilizing the market,
including those who invest in properties to repair and improve
them, owner occupant buyers, and those that build and maintain
quality, affordable rental units,' Wilson said. 'We believe our
requirements are carefully crafted to ensure that we are
financing legitimate buyers who opt to purchase with cash.'
All-cash buyers are now one-third of the market and far higher in
the more distressed markets. Most all-cash buyers are investors,
but owner-occupants are also trying to take advantage of reduced
pricing on distressed properties; trouble is they can't always
compete in the all-cash arena.
A lot of deals, especially short sales (where the bank lets you
sell for less than the value of the mortgage), have fallen apart
because of buyer financing issues. All-cash buyers also usually
get a price break in competitions with financed buyers, as
sellers would rather just see the money. This could give some
owner occupants at least an even playing field with investors.
Obviously they still need the cash up front, but only
temporarily. Will this now create a new breed of quick flippers?
Today's investors tend to hold long-term and rent out in order to
make their gains, but now, with a quick financing option, they
may take the money out to do upgrades and then put the property
right back on the market. Tough to say, but it certainly changes
the lending landscape and signals something of an olive branch to
all those real estate investors, who are helping to clear the
vast quantity of distressed properties that continue to plague
the nation's housing market." So what do you think?
Here's 2 a great 2nd half
