Simplifying The Market

Friday, February 27, 2009

Good News for Real Estate Investors Looking for Financing

As of last Friday, there is good news for real estate investors with more than 4 financed properties. Fannie Mae is lifting their ban on financing investors with more than 4 financed properties raising the total number to 10. According to Fannie Mae, the rationale for the change is that experienced investors can “play a key role in the housing recovery”. Until now, foreclosure auctions have gone at less than full speed because investors unable to pay cash have been halted by the existing 4-property Fannie Mae limit.

These new guidelines will take effect on March 1st, 2009. There are some particulars to keep in mind however if you are an investor looking to capitalize on this. Investors buying a 5th, 6th, 7th, 8th, 9th or 10th home must meet the following standards:

720 credit score
25% downpayment for a 1-unit (30% for a 2-4 unit)
No mortgage delinquencies in the last 12 months
6 months of reserves for each investment property
Going forward, expect a more expedient foreclosure liquidation nationwide which should, in turn, provide further support for the housing market. This should help get things flowing again. Also, if you are an investor that has more than 4 financed properties currently, you can now look to refinance and capitalize on the historically low interest rates.
Author: Steve Heideman • URL:
February 16th, 2009 •

If you turn down Pandora and listen closely, you can hear real estate investors in Chicago cheering all the way from Cincinnati.
Read the Fannie Mae official announcement -- you get the sense that the nationalized group is getting with the program. This excerpt comes from the lead paragraph: "Fannie Mae is committed to providing financing opportunities for high-credit quality, bona fide investors. Experienced investors play a key role in the housing recovery."
The use of the phrases "high-credit quality," "bona fide" and "experienced" was a conscious one, by the way. Fannie Mae is averse to first-time investors and other foreclosure opportunists. Instead, it wants to serve individuals with a history of owning and successfully managing rental property.
To that end, Fannie Mae will now finance the purchases of one-unit homes for investors with an interest in between 5-10 properties, provided that all of the following guidelines are met:
• 25 percent down payment on the investment property; • Minimum credit score of 720; • No mortgage payments late within the last 12 months; • No bankruptcies or foreclosures in the last seven years; • Two years of tax returns showing rental income from all rental properties; • Six months of principal, interest, taxes and insurance reserves on each of the financed properties. And lastly, to reduce fraud, Fannie Mae will now require all real estate investors to sign a form granting lenders permission to verify supplied tax returns against the official, IRS-filed version. This document is less commonly known as a 4506-T. But lest we think this guideline change is Fannie Mae's olive branch to the people, let's remember that our nation's banks are holding record numbers of foreclosed homes on their balance sheets right now while the most likely buyers of those homes have been to-date locked out from financing. Real estate investors want to buy REO, but Fannie Mae had made it impossible. The guideline change is meant to extend banks and lenders a lifeline first; bringing experienced investors back into the fold is just how it's getting done.
That said, real estate investors are lovin' it. For the first time since September, investors can go to auction and know that (relatively) cheap financing will be available from the government. This should speed the reduction of REO inventory nationwide. In addition, with more investors eligible for financing, expect greater competition for prime foreclosed properties, helping to keep home prices from falling into the abyss. The rollback gives a secondary benefit to investors, too -- even those not buying additional property. See, when the four-property restriction went into effect it was a surprise , 11th-hour announcement made on the Friday before Fannie Mae's nationalization. This date, meanwhile, has come to be known as the day before the refi boom started. So, on the following Monday, when mortgage rates instantly plunged three-quarters of a percent, homeowners with five properties or more found themselves ineligible. They couldn't refinance their investment homes; they couldn't refinance their vacation homes; and they often couldn't refinance their primary homes, either. While rates fell for nearly every borrower class, experienced real estate investors were locked out. Today, that's no longer the case. "High-credit quality, bona fide" real estate investors are back in the game. It's good for them; it's good for the banks; and it's good for housing.
Not every bank sells loans to Fannie Mae, however, so if you think the new guidelines will impact your mortgage plans, be sure to check with your loan officer first. Originally posted at The Mortgage Reports blog, Copyright (c) Dan Green [6]

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