Correct me if I am wrong, but the main thing hurting the economy is real estate—specifically too much real estate that is sitting empty because of an epidemic of foreclosures. There are many ways to deal with this, but the most direct way is to have people buy these “empty” homes and take them off the market. Again we have to figure out who is most likely to do that for the good of the country, and hopefully themselves? You basically have two homebuyer choices: those who will live in these places, whether it be a primary residence or a second home; and those who will buy the properties and rent them to prospective tenants. That being said, I am of the opinion that those who will buy homes as income property will outnumber those who will be buying them as their own residences.
What group of buyers would you think are the least favorite of Fannie Mae and Freddie Mac, even now that Fannie and Freddie have been taken over by the government? Who else but investors! What am I missing? If real estate would turn around, so would the economy. Besides me, who else made that very statement this weekend? None other than Alan Greenspan, former head of the Federal Reserve. As of the day I am writing this column, we have new charges for non-owner occupied borrowers—in other words, investors—who seek financing up to 75% loan to value (LTV). The investor must now put up 1.75% (points) just to get a Fannie Mae or Freddie Mac loan. From 75% to 80% LTV, which means a 20% to 24.99% down payment, the points go up to 3.00% (3 points). Over 80% which means less than 20% down the cost is 3.75% (3 and 3/4 points). I don’t know about you, but this type of treatment seems counterproductive.
Freddie Mac has already passed a rule that says if you finance more than four properties, they will not buy the loan. Fannie Mae, reluctant to go along with Freddie Mac on everything, will go to 10 mortgages on 10 properties, but charges an extra .25 in rate on all loans beyond the fourth one. In January they are going to give in and drop it to four total mortgages to meet Freddie Mac’s rule. Before January, however, Fannie has a four-loan limit on second homes and investment properties and a four-loan limit when financing using conforming jumbos. Unless you have a lot of cash, it seems that owning a number of houses is “out of the question.” Again, this doesn’t appear to be the way I would encourage people to go out and buy real estate. My next question: do the “powers that be” know this is going on? And if they do, is this copacetic with them?
Roger Schlesinger's Mortgage Minute is heard on hundreds of radio stations and daily on the Hugh Hewitt radio show and Michael Medved shows. Roger interacts with his hosts and explores the complicated financial markets in order to enlighten his listeners and direct them along their own unique road to financial freedom.