The imminent failure of both Freddie Mac and Fannie Mae has already begun to have a detrimental impact on the larger US economy and the ability of home buyers to finance the purchase of a new home.

This is an unfortunate circumstance for many young families who may not be able to qualify for a mortgage to purchase their new home because of tighter bank underwriting guidelines. While this is a negative situation for young families looking for their own homes it could be a potential wind fall for the owners and operators of apartment building complexes across the United States. All of the people displaced by the housing bubble along with new populations of young people looking for housing will have to turn to rental properties for housing. The fact that more and more residential, single family homes are entering into foreclosure should also further diminish the available supply of rental units on the market.

When a home is in foreclosure or bank owned it can’t be rented and it sits as an empty, unavailable property. For example, on the residential street where I live in Fort Lauderdale there are 3 or 4 houses on one block that appear to be completely abandoned and in some stage of foreclosure or bank ownership. No one can rent these homes because they are bank owned and waiting for a buyer. Meanwhile the prices of homes in the neighborhood are still priced well above the ability for most working families to afford, especially considering the difficulty many are experiencing when searching for an affordable mortgage.

The obvious choice for many young families and those displaced from their homes because of foreclosure is to find a rental property to live in while saving money for the future purchase of a single family home. With the expected decline in available rental homes available on the market due to bank ownership many families and young people will be looking to apartment buildings for housing. This increase in the number of potential renters comes just at a time when the construction of multi-family buildings has begun to decline.

The decline in the construction of new apartment buildings is due to the fact that many banks and real estate financiers are cutting back on new construction projects nationwide. They are unwilling to take the risk of funding new construction during a time when residential real estate prices are dropping rapidly. According to the Associated Press, the “Standard & Poor’s/Case-Shiller U.S. National Home Price Index tumbled a record 15.4 percent during the quarter from the same period a year ago.”

It remains to be seen what impact the decline in availability of rental properties will have on the rental rates for major metropolitan areas.

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Tags: apartment building vacancies, apartment investing, Economy, fannie, Fannie & Freddie Mac Loans, freddie, freddie mac, rental vacancy

There are two major player in the lending industry right now, Freddie Mac and Fannie Mae, both of these companies are very important because they more or less dictate the rules and guidelines for lender and banks across the USA.

Freddie Mac recently released a guideline change - “We are revising our requirements for Investment Property Mortgages to reduce the number of financed properties in which a Borrower who owns more than one financed Investment Property may have an individual or joint ownership interest (including the subject property) from 10 to 4. Also, effective for Mortgages with Freddie Mac Settlement dates on or after August 1, 2008, the borrower on a cash-out refinance mortgage must have owned the subject property for at least six months prior to the note date of the new refinanced mortgage.”

Investors that hold properties titled in an LLC’s, will have to wait 6 months after they quit claim into their personal name to refinance.

Who is Freddie Mac and why are they so important?

Freddie Mac is a stockholder-owned corporation established by Congress in support of homeownership and rental housing. Freddie Mac purchases single-family and multifamily residential mortgages and mortgage-related securities, which it finances primarily by issuing mortgage backed securities and debt instruments in the capital markets or Wall Street. Historically, Freddie Mac has opened doors for one in six homebuyers and more than two million renters in America.

Investors need to start worrying when…

As of 6/3/03 the larger and more influential Fannie Mae has not changed their guidelines, but if they do change their guidelines, millions of investors would have to find new source of funding or be content with owning four or less properties.

Tags: fannie, Fannie & Freddie Mac Loans, freddie, lender, loans, mortgage, real estate

Fannie Mae & Freddie Mac Mortgages

Nearly every Bank, Credit Union, Mortgage Banker and Mortgage Broker can offer the loan products backed by the federal charted companies Fannie Mae and Freddie Mac. Investors that have good credit, can document income and are ready to put money down can acquire a loan from either Freddie or Fannie. Investor’s utilize this loan because they are the most competitive loans when it comes to interest rates and closing. These loans are underwritten through an automated system which takes credit, assets, loan to value, and debt ratios into consideration. Because the loans are underwritten by a computer there are certain compensating factors that can help approve your loan. Let’s say Joe investor has ok credit, high debt ratios (60%), but has lots of reserves and can put 30% down. They could approve this borrower because there are assets reserves to compensate for his high debt ratios and just ok credit. Believe it or not Freddie Mac even has a Stated income program. That’s right, a federal charted company has a stated income program. It truly is designed for self employed borrowers, but salaried individuals can use it as well.

Below is a thumb print of what you can expect from Freddie Mac on investment properties:

Full Documentation: Ideal for borrowers looking for conforming loan amounts who have good credit and assets:
1 unit: 90% LTV / 85% 1st Lien / 90% TLTV - $417,000
2 unit: 90% LTV / 85% 1st Lien / 90% TLTV - $533,850
3 unit: 75% LTV / 70% 1st Lien / 75% TLTV - $645,300
4 unit: 75% LTV / 70% 1st Lien / 75% TLTV - $801,950
Cash Out 1 unit: 85% LTV / 80% 1st Lien / 85% TLTV - $417,000
Cash Out 2 unit: 85% LTV / 80% 1st Lien / 85% TLTV - $533,850
Cash Out 3 unit: 70% LTV / 65% 1st Lien / 70% TLTV - $645,300
Cash Out 4 unit: 70% LTV / 65% 1st Lien / 70% TLTV - $801,950
Not available IO

Stated Income: Ideal for self-employed/salaries borrowers with excellent credit. No tax returns or other written verification of income. Assets are required to be verified.

1 unit: 90% / 90% - $417,000 - 720 75% / 90% - $417,000 - 680
2 unit: 90% / 90% - $533,850 - 720 75% / 90% - $533,850 - 680
3 unit: 80% / 80% - $645,300 - 720 75% / 80% - $645,300 - 700
4 unit: 80% / 80% - $801,950 - 720 75% / 80% - $801,950 - 700
Cash Out 1 unit: 75% / NA - $417,000 - 680
Cash Out 2 unit: 75% / NA - $533,850 - 680

A-minus; Ideal for borrower who don’t meet “A” paper credit standards. Allow borrowers to obtain a conventional product at a slightly higher rate.

1 unit: 90% LTV/85% w/sub. financing/90% TLTV - $417,000
2 unit: 90% LTV/85% w/sub. financing/90% TLTV - $533,850
1 unit:* 90% LTV/85% w/sub. financing/90% TLTV - $417,000
2 unit:* 90% LTV/85% w/sub. financing/90% TLTV - $533,850
3 unit:* 75% LTV/70% w/sub. financing/75% TLTV - $645,300
4 unit:* 75% LTV/70% w/sub. financing/75% TLTV - $801,950
Cash Out 1 unit:* 85% LTV/80% w/sub. financing/85% TLTV - $417,000
Cash Out 2 unit:* 85% LTV/80% w/sub. financing/85% TLTV - $533,850
*Borrowers may not own any other financed investment properties

This is great news for the investors that rely on the Fannie Mae and Freddie Mac loan products to finance your properties. Rates are down and Congress has passed legislation to increase the minimum loan about. The details are currently be worked out but some figures are has high has $739,000 in some markets. This increase will only be for 2008

Tags: community first financial, Conforming loan amount increase, Fannie & Freddie Mac Loans, Investor Loans, Stated Income investor loans, troy schuricht