What a Private Mortgage Market Could Mean to You

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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

About Author

Kevin Kaczmarek is President of Capital Blueprints, LLC. Serving a national and international client base, Kevin helps clients achieve their personal goals for long-term stability and solid financial growth through Self Directed IRA Investments and individualized Passive Income Strategies.

10 Comments

  1. I work with traditional and private money. What I am finding is that there is more and more fannie freddie fallout on good people that deserve loans. Luckily I work with several private lenders here in the CA bay area who have been able to save a lot of out loan fall out.

    Here are 10 loan scenarios that fannie freddie said no to and we were able to recently complete.
    http://www.jasonwheeler.biz/private-money-portfolio-lending-scenarios-funded-we-can-close-when-your-lender-says-no/

  2. You couldn’t be more right Kevin. We’re bullish on seller financing here in Phoenix. I have a long list of buyer’s with 10-20% to put down and good income. The only reason they can’t qualify for a traditional bank loan is they recently went through a short sale or foreclosure. It seems their only mistake was buying a home at the worst possible time in American history. Now they’re being severely punished. Many private lenders and investors already know this and are creating a win-win by offering terms (carry backs, lease options, wraps).

  3. There are many of us who for years have used seller financing to create cash flow. Unfortunately, The HUD interpretation of the SAFE law now prohibits seller residential financing, except if the home has been the primary residence of the seller for a minimum of three years.

  4. Marty – my biz partner and I are looking for houses to pick up and hold for cash flow with seller financing in the Phoenix area, but so far the terms have been prohibitive for our business model. Do you have any advice or suggestions?

  5. Real estate, like life, always finds a way.

    Press about the end of Fannie and Freddie has been all over the place for the last month or so. Great post, though – clear, thoughtful, to-the-point.

  6. This future cloud has silver lining for everyone.
    First folks won’t be so fast to walk away from their promises to pay, making responsible homeowners.
    A new class of responsible tenants will be created, those that will need to save money and build good credit in order move up to the American Dream. Like the good old days. Nothing like having some skin in the game to build responsibility.

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