The New York Times featured an interesting article last week on life after the 30 year mortgage. More specifically, how the mortgage market would look like if Freddie Mac and Fannie Mae go away.
Some would say, the reduction in government “guidance” in the mortgage market will be good for free enterprise and will create new avenues of revenue in the mortgage industry for various businesses, banks and Wall Street. While this may be true, let’s re-evaluate this thought process. We need to look no further than the market meltdown of 2008 to see how Wall Street handled our mortgage backed securities. Wall Street turned the average American homeowner into a “bet”. It became a series of hedged bets that went wrong, resulting in millions of Americans losing their homes. This left the rest of us holding assets worth considerably less than what we purchased them for.
As we flash forward three years to now, there are lingering questions regarding how many homes will still go into foreclosure, how long this market will remain in flux and what will be the definitive turning point.
With all the talk of Freddie and Fannie going away and the mortgage industry being taken over by banks and Wall Street, we have to look at this as an amazing opportunity for real estate investors. In a private mortgage market, banks and Wall Street will inevitably screw things up again by trying to enforce rules and regulations that are all over the board: Too restrictive lending standards, Too loose lending standards, new regulations, new security instruments to sell on Wall Street. These are just a few of the changes we can expect to see if the mortgage market goes private. With all of these changes, the process of getting a mortgage will become a more “specialized” transaction cutting out even more Americans. It will mean less customer service and more fees. If this happens it will create an amazing opportunity for us as real estate investors to lend to prospective homeowners on seller financed terms.
Seller financing a property you own can help provide more personalized customer service and help solve some of the problems that got us to this point. As an investor, we have an opportunity and a responsibility to provide fair lending to prospective homeowners. Selling your property on contract terms is a powerful solution to rebuilding the homeownership market when qualified buyers are being turned away by the banks.
During the S&L crisis, seller financing became a standard way to buy and sell properties, thus stabilizing the US market and aiding in the economic recovery. We sit here 20+ years later, in a similar economic landscape and we know that it’s up to us, as investors, to stimulate the homeownership economy once again. Using seller financing, we can help stabilize pricing and create a positive ripple effect in the economy. The result? Helping more people realize the American dream of homeownership and giving investors the opportunity to build long-term stable returns.
Photo Courtesy: Stuart Michael Davis