New Mortgage Guidelines Put Limits On Residential Real Estate Investors

Before the Goverment aquired Fannie Mae it altered mortgage guidelines for real estate investors 9/05/2008. It was Fannie’s 22nd update this year.

The first part of the guideline change limits the number of properties owned by any one person.
Fannie Mae will now decline any mortgage application for a second home or investment property if the mortgage applicant already finances, or will finance, more than 4 properties in total.
The former guidelines allowed for 10.

There is a loophole, however. Fannie Mae will not count properties against the 4-property limit if they are held in the name of a corporation. This holds even if the real estate investor is the sole owner of said corporation.

Investors, therefore, should consider moving their properties into a corporate structure to avoid triggering Fannie Mae’s 4-property limit. Investors often take this step for liability and taxation reasons, but it’s now a good idea for mortgage approval reasons too.

The second part of the guideline change cannot be so easily avoided. Fannie Mae is assessing new, loan-to-value based loan fees on all investment property mortgages.

Loan-to-value less than 75 percent : 1.75% loan fee
Loan-to-value 75.01-80.00 percent : 3.00% loan fee
Loan-to-value 80.01-90.00 percent : 3.75% loan fee

These fees are mandatory and are in addition to any whatever other risk-based loan fees Fannie Mae may assess. Currently, those fees amount to a half-percent at minimum for real estate investors.

Since its Fannie/Freddie takeover, government officials have not addressed whether mortgage guidelines will be rolled back to “a looser time”. If they are, it would be a big deal for real estate investors because, as many are finding out, low rates don’t matter much if you can’t qualify for them.

If you’re currently in the market for an investment property (or two), consider that it may be cheaper and simpler to purchase over the near-term versus the long-term. And consider moving your existing properties into a corporate structure first.

If you are thinking of purchasing or refinancing an investment properties feel free to contact me William Doom, CMPS. For a FREE Mortgage Investment Analysis. Stay up to date on the Mortgage Market read my Blog http://www.yourmortgageplannersblog.com/

Yes Virigina, We Do Have To Bail It Out

There has to be a bailout. It just needs to have accountability and legal recourse, as has been reflected in ongoing developments such as explicitly not rewarding (and preferably penalizing) those responsible for this melt down, not letting companies whose practices created this mess get bailed out without losing some ownership, and limiting executive pay for those receiving bailout money. This bailout will likely cost the taxpayers substantially more than $700 billion. Many current estimates are about 2 trillion dollars.

We have allowed blaming of the greedy lenders and dishonest borrowers to distract us from the real cause of this financial system crisis - the structured financial system and rating agencies on Wall Street. As was reported in the March 14, 2003 OFHEA report which I have cited before, Wall Street selling mortgage backed securities and creating derivatives with them (stripping out layers of risk) without visibility into risk that are rated if they are guaranteed by the Government, and as they have in the past, expecting to rely on a government bailout when it all comes crashing down, was cited as the primary concern for a potential systemic financial system failure. One where credit markets would crumble. We are there. Indymac and other banks that have failed have not failed because of bad assets. They have failed because of liquidity problems in the credit markets. They can't sell the loans they make on the secondary market so they can't make more loans. Can't make loans, out of business.

Kevin Hardin, Director at Mortgage Mediation Group illustrates how mortgage backed securities derivatives work with:

By third quarter of '06 we had some $12 Trillion in mortgage debt in this country and by middle of '07 we had some $40 Trillion in securitized contracts (MBS [mortgage backed securities], CDO [collateralized debt obligations] and CDO Squared) backed by those $12 Trillion in mortgages. Duh!! What kind of new math is this? Ok, you take $12 Trillion on mortgages and securitize them, OK. But then greed sets in and you take the subordinate pieces of these Rated (Moody's, Fitch and S&P) MBS's and then you re stack them up and re tranche them and re rate the newly formed senior pieces and print $20 Trillion in new paper! Yeah Greed! But Wait!, we are not done. Greed continues and we take the subordinate pieces of those CDO's and re stack, re tranche and re rate them and create CDO squared instruments and there goes another $10 Trillion plus. Gotta love that math. In order to feed this pipeline these structured finance guys went to the servicers and improved the pricing and told them Push Push Push new products. The servicers did not create these products. You can't sell Coke till they make Coke. The structured finance guys created the sub prime and non prime products i.e. extended Option Arms, I/O on Arms, No Doc, Stated Stated, Sub Prime 0 down 500 FICO, etc. The servicers said Yeah!, the originators said Yeah! and the mortgagors said Yeah!. Everyone goes down the road thinking, Hey!, property will continue to increase in value and these loans only constitute 15% of the total originations and currently we are only on a 6% default rate.

If you're feeling your eyes have glazed over, you're not alone. It is complex, but it can be understood. Really. Kevin also adds that the biggest victim of this derivatives fiasco is not the United States taxpayer. It is China, Asia, Middle East, and Europe who bought approximately 60% of the $40 billion of worthless derivatives created by Wall Street.

Deregulation does not work when moral hazards are present. A precipitating factor in the S&L crisis that lead to the Resolution Trust Corporation in the early 90s, which cost taxpayers $160 billion was misconduct by loan originators, propelled by greed. We did not learn from our mistake. Arizona, which finally passed legislation requiring licensing of all lenders in July 2008, was one of a handful of states where convicted felons flocked to commit more felonies in the lending arena. Where there is great risk for moral hazard, as there is in loan origination and complex financial instruments such as derivatives, there needs to be adequate regulation and oversight to ensure the welfare of the general public.

We have a double whammy - a financial system crisis and a national fiscal crisis. The national debt of more than $31,000 for every man, woman and child is rapidly becoming unmanageable on its own is now compounded with the expense of financial system crisis bailouts. One of the contributing factors to our national fiscal crisis is that Americans have become complacent. Many have come to expect our government to take care of us providing for us in old age, ensuring we have medical care, and ensuring against all natural disasters. We have been willing to be pacified by our elected officials telling us that the government owes us and will take care of us. That is not a democracy, that is socialism. We have committed to social security and Medicare payments, a.k.a. entitlements, that as baby boomers begin to retire en mass, we can not afford.

We have allowed our elected representatives to cater to the agenda of business and political lobbyists instead of listening to their constituents. This wasn't difficult because their constituents are by and large silent. Do you know who your representative is in the House and/or the Senate? Have you ever written about any issue? Do you just toss the periodic sugar coated, self serving reports they send from Capital Hill. We as citizens in a democracy have a responsibility to participate in our government. We have a responsibility to educate ourselves about the issues and let our elected representatives know our stand. As in of, for, and by the people.

We not only stopped holding our business and political leaders accountable, we have come to expect that they will be corrupt. The House of Representatives has introduced resolutions to impeach EVERY SINGLE President since Jimmy Carter. That's a generation that has not seen a President who hasn't been accused of criminal conduct! Americans need to make our most serious deficit, our leadership deficit, a national priority. We have forgotten that leadership is NOT about money and power. Leadership is about service and responsibility. We need to stop buying the bill of goods that our elected officials will go to Washington and bring home the bacon so we can be comfortable and not worry. We need to listen to those who tell the truth, especially when it is unpleasant. We need to call for leaders that be faithful to the best interests of the American people, not business and political lobbyists who typically line their campaign coffers.

We DO NOT have a train wrecked economy. It takes two consecutive quarters of negative GDP for a recession. Preliminary 2nd Quarter 2008 Real GDP released August 28 grew by 1.4%, more than what was estimated. We have only had one negative Real GDP quarter (4th Quarter 2007 down .9%) in the last year an a half. Unemployment rose from 5.6% to 6.1% in August, mostly in manufacturing and professional and business services (which would include most everything related to the real estate industry). Employment in mining, healthcare, and government grew. The Household Debt Service Ratio actually dropped in the 2nd Quarter 2008 to the lowest levels since 4th Quarter 2004. Although we have a Wall Street originated storm in our financial system and a fiscal crisis due to entitlements we can not pay, our economic fundamentals are still strong.

Our inflation is primarily driven by oil prices increases that are rippling through the economy. We've known that we needed to get off of our oil addiction since the oil embargo in the mid-70's. Every time there's been a significant increase in oil prices, it has rippled through the economy then settles. At some point it will be pain enough that efficient alternatives will emerge. This is an opportunity for innovation.

So what can you do?

• Americans need to take responsibility and hold themselves accountable for their civic duty to educate themselves about issues and have their voice heard in their government via their elected representatives. We live in a democracy, not a socialism. As citizens, we are responsible for participating in our government.
  
• Americans must hold our law enforcement agencies accountable to investigate, arrest and recover hundreds of millions of compensation to those that carried on the criminal acts that contributed to this meltdown, including market manipulation and crimes by ratings agencies. You do this by writing to your elected representatives in Washington here and stating your position.
  
• Americans need to more sanely regulate and enforce existing regulation in financial markets to prevent another fiasco at the expense of the American taxpayers. You do this by writing to your elected representatives in Washington here and stating your position.
  
• Americans need to hold their representatives accountable for finding a solution to the social security and medicare entitlement dilemma, stopping the pork barrel spending, and casting their vote according to the voice and best interest of their constituents instead of the political and business interests of the lobbyists. You do this by writing to your representatives in Washington, stating your position here, and monitoring the actions of your elected representatives.
  
• Americans need to continue to reduce consumer debt and re-learn to pay themselves first (save). If your parents were survivors of the Depression (as was my father), you were taught this all your life.

As Americans, we need to wake up, take responsibility for our current condition, and take charge of our destiny. As Americans, we need to take our country back to navigate out of this horrendous financial mess, solve our entitlement problem, and insist regulations be put in place to prevent another Wall Street originated disaster. As Americans, we need to refuse to spend our time, energy, and brain cycles being paralyzed by economic fear. Instead we need to focus on using our collective creativity, talents, and resources to revive our economy with thrift, innovation and entrepreneurialism and to make our voice heard in our local and national governments.

Life is a series of great opportunities brilliantly disguised as impossible situations.

- Charles Swindall

All that is required for evil to prevail is for good men to do nothing.

- Albert Einstein

In God We Trust

March 14, 2003 Prognostication Comes True?

Yesterday was a shock. Lehman Brothers bankrupt, Merrill bought out by Bank of America. The market plunge figuratively wiped out retirement accounts of many who had not moved to cash. According to Wall Street, AIG is such a big player in insuring risk for institutions around the world that its failure could undermine the global financial system. Not surprising, the world’s central banks rushed to inject cash into the American banking system to keep money markets world wide from seizing up as fears grow. Today they injected more with AIGs downgrade and liquidity problems. Today Goldman, viewed as the strongest of the Wall Street independents, is reporting weakness with revenues and profits plunging 70%. This morning the Fed ignored calls for a rate cut, driving markets lower. Stock market volatility is reported to be at a 5 year high.

The Office of Federal Housing Enterprise Oversight (OFHEO), which oversees Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac, published a report on March 14, 2003 titled Systemic Risk: Fannie Mae, Freddie Mac and the Role of OFHEO. When you read through this and subsequent regular OFHEO Reports to Congress at www.OFHEO.gov, it doesn't take long to understand that our elected representatives have turned a deaf ear to the consistent OFHEO warnings about the risk of ongoing GSE activities to financial markets.

Are we facing a systemic worldwide financial system failure? Looks that way to me.

In God We Trust

What a Week!

What a week this has been! Fannie Mae and Freddie Mac went into receivership, hurricane Ike slammed Texas, and Lehman Brothers looks like it will be the next investment bank to require a bailout.

While the American taxpayers are now guaranteeing 5 trillion in loans, the fact is that the default rate only about 1.96% (Freddie at .81% and Fannie at 1.15%), adding about 98 billion to the national debt. Hurricane Ike is expected to cost taxpayers about 25 billion. A Lehman Brothers bailout is expected to also run about 25 billion.

This takes our national debt from about 9.682 trillion to 9.830 trillion, or from 68% of our GDP to 69% of our GDP in just one week. The national debt to GDP graph http://zfacts.com/p/318.html shows that at 69% we are close, if not hitting a higher national debt to GDP ratio than we have had since about 1952 when we were paying off World War II.

Most don’t think the US is headed for a depression or worse, bankruptcy. Some think that bankruptcy would be the vehicle to replace the dollar with the Amero to give birth to the North American Union. Fiction or not, many of the predictions are just a little too accurate to not be just a tad scary.

I think we as Americans need to take back our country. We need to get a back bone and stop tolerating corrosive immorality and lawlessness in our government, in business, and in the media. We need to remember the values of our Founding Fathers. We need to take responsibility for ourselves, our communities, and our destinies.

In God We Trust.

What to Do About the Leadership Deficit

According to Dave Walker, former Comptroller of the United States, the forth and most serious deficit in the United States is leadership. How did this happen?

Over the years we have been subconsciously conditioned to stop holding our leaders accountable. We, as a people, have come to expect our business and political leaders to be corrupt and immoral. What was once upon a time unthinkable has become status quo. How?

• A resolution was introduced into the House of Representatives to impeach George W. Bush charging that the President manufactured a false case for the war, violated U.S. and international law to invade Iraq, failed to provide troops with proper equipment, falsified casualty reports for political purposes, that Bush illegally detained without charge both U.S. citizens and "foreign captives", violated numerous U.S. laws through the use of "signing statements" declaring his intention to do so, and failure to comply with congressional subpoenas.

• Bill Clinton was impeached on December 19, 1998 by the House of Representatives on grounds of perjury to a grand jury. President Clinton was acquitted of the obstruction charge by a 50 to 50 vote in the Senate.

• There was a Congressional resolution to impeach George H.W. Bush in 1991 charging violations of the Constitution, Federal law, and the U.N. Charter.

• By the end of his term, 138 Ronald “catsup is a vegetable for school children” Reagan administration officials had been convicted, had been indicted, or had been the subject of official investigations for official misconduct and/or criminal violations. In terms of number of officials involved, the record of his administration was the worst ever. The Reagan Administration was also the first to have increased the national debt faster than growth of national income and was the Administration that shifted the bulk of the tax burden from the very wealthy to the middle class. In 1983 there was a resolution to impeach Reagan on charges of an illegal war against Nicaragua, unilaterally starting a war in Grenada, and abuse of power in the Iran arms scandal.

We have not had a President who has not had an impeachment resolution since Jimmy Carter! It has been 27 years since we have had a President with enough integrity not to be charged as a criminal. Good or bad, our nation’s President is a role model. What I don’t get is why Americans aren’t outraged.

Our moral identity has shift so far out of balance Americans have almost forgotten what we are supposed to, as human beings, hold up as a measure of acceptable conduct that ensures our health, wealth, and pursuit of happiness. Our moral identity, the standards by which we define a worthy and acceptable individual, has been corrupted by our leadership and the media we allow to penetrate our culture. Moral self-concepts emerge in young childhood and become self-conscious through middle childhood and into adolescence. In youth and young adulthood, the moral identity integrates and consolidates. None of my children, now 28, 26 and 23, have witnessed a presidency that has not been a daily front page Washington Post scandal. The moral identity embodiments I grew up with of Truth, Justice, and the American Way have give way to greed, glorification of violence, and sexual exploitation of men, women, and children.

The fact is that everyone stands under the moral obligation, including business and political leaders. We as a country have failed to maintain our own sense of accountability to civic duty. We have failed to rebuke those in our community who violate moral, ethical, and legal standards of conduct in a timely manner. We have failed to hold our business and political leaders accountable. If we want this country to remain a democracy, we need to seriously evaluate the strength of our own moral compass, be accountable to and exercise our civic duty, and most importantly, become truly outraged at the irresponsible, immoral, and illegal conduct of our business and political leaders.

In God We Trust