from Local Attorney, Michael H. Wasserman

Sunday, February 8, 2009

Good News for Real Estate Investors

While I may have my doubts about the proposed home buyer tax credit, I have no such doubt about Fannie Mae's latest pronouncement.

On Friday, Fannie Mae announced that it is removing the "four property" cap it imposed on real estate investors last year and will now fund loans to "high-credit quality, bona fide investors" for the purchase of up to ten investment properties.

The loan guidelines are reported as:

  • 720 minimum credit score
  • 75% maximum loan to value for purchases
  • 70% maximum loan to value for refi's, including "cash-outs," to the limit (ok, that assumes that you have that still much equity left in the property)
  • Starting March 1, 2009
Ok, truth be told, the four building restriction was only announced last fall and went into effect in December, so it was only a thorn in our sides for what, five weeks? But it most certainly was a thorn in the side of many investors. Why did the government stick it? Lenders needed to try to stem the tide of defaults on investment loans. For Fannie Mae, this was a classic case of closing the barn door after the cows had gotten out. By that point, there were simply too many unwise loans given to too many speculative investors buying condominiums to flip or to developers converting three-flats or other buildings into condominiums for those speculators. Those loans have been most vulnerable to defaults, distressed owners & foreclosures.

But kick starting the real estate markets take a higher priority right now. Investors and going to lead the way. A different type of speculation, perhaps, but this time the tighter screening of borrowers should filter out riskier loans.

This is great news for anyone who was capped by the "old" limit.

This is equally good news for anyone who has been sitting on the sidelines waiting to buy an investment property or two.

It seems to to me that there is a vast inventory of REO (bank owned) properties on market, or coming soon. Prices have certainly dropped. Interest rates are still very attractive. There is a certain "dis-satisfaction" with stock market returns now.

Is now the time to take on a (another) rental property?