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.
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