Call me skeptical, call me jaded, just don’t call me late for dinner. I once had a girlfriend whose father must have dropped that tired little ditty a million times during the 6-years we were together. I wanted to puncture my ear drums with knitting needles every time he said it. What’s this have to do with real estate, Craig? Not a damn thing, really.
I just read the following headline on Google News; “Fannie Mae Posts Biggest Profit Since 2007.” Then I paused and waited as the needle on my internal crap-detector rose to the line that reads 100% stinky bull-shit!
You’ll recall that the US Govmt seized Fannie in 2008. Question; how does something get seized by the government when in fact the government already kind of owns it? Since the housing bubble bursted you, me and a few hundred million other tax-paying US Citizens have poured in $116 BILLION dollars (no wonder my bank account has a few less zeroes) of our hard earned money to keep the quasi-governmental agency afloat. And let’s not forget Fannie’s dysfunctional brother Freddie. If Fannie is a hopeless meth-addict selling herself on the street for her next fix, Freddie is crack-head looking for crack-crumbs in the carpet at 4AM. We also contributed an additional to $71.3 billion to Freddie. That’s $200 bill between the two. Someone call Betty Ford, these two need a 12-step program.
And you ‘ll love this, even after posting profits, both agencies came back to the well for more money! Los Angeles Times reporter Jim Puzzanghera writes, “The profit was its first since Fannie Mae reported a $73-million profit in the fourth quarter of 2010. But even then, the company needed $2.6 billion from the federal government to stay afloat and to afford the 10% quarterly dividend it must pay on its bailout.”
How does that work? Each agency posted a profit, but then went back and asked for another $3 billion. And this brings me to the real reason for today’s little rant – don’t believe everything you read or hear! The headline of the story would make you believe that all is good, that we’re turning the corner. You’re a reader of my blog so I know you are smarter. I don’t worry about you.
Tell a Friend To Get Informed
The real reason for this post; my real worry is the other 98% of Americans who get their news from The Daily Show or People Magazine. I worry about people who think that John Stewart is a real news reporter and who’d rather know more about Kim Kardashian’s 6-hour marriage then why we’ve paid $300 billion dollars of our children’s and grand-children’s money to bail-out two agencies that failed through no fault of ours. I’m worried my vote being cancelled out by someone who could regale you with every detail of last night’s episode of The Real Housewives of Atlanta, but could not tell you one thing about the pitfalls of government run healthcare. I’m worried about an electorate who think its super-cool rather than demeaning for their president; the most powerful man in the world to slow jam the news with Jimmy Falon. The approval rating for Congress has fallen to another all-time low; 13%. I’m worried about the 13% who said, “Yes!” WHO IN THE HELL ARE AMONGST THE 13%? Who are these people, where are they getting their news and will the be voting? Scary.
Get informed, people.
THE REST OF THE FANNIE STORY IS HERE
Fannie and Freddie are selling houses like Costco sells toilet paper!
With homeownership rates dropping like dresses on prom night and so many families experiencing the sting of foreclosure, rental demands are skyrocketing, which has investors pawing at the doors of homeowners with saliva dripping from their ravenous mouths. Why are investors exhibiting Cujo-like characteristics, you ask? Because the market conditions are ripe for investors to buy dozens, hundreds, and in some cases thousands of homes at huge discounts.
BUY HOUSES IN BULK
But is it a smart move to purchase so many properties and maintain such large portfolios at once? Some critics are concerned that wet-behind-the-ears companies like Waypoint (who focuses on the Bay Area and Southern California) could experience costly rookie mistakes along the way. Waypoint claims to have the technology and infrastructure to succeed, so let’s put it to the test, shall we? Waypoint’s system of algorithms, google maps, and inspector/appraiser reports, calculated a bid of $103,000 for a three-bedroom bungalow in San Bernardino. Joe Maehler, Regional Director of Waypoint’s Southern California office, investigated comparable homes that the company already owned to find that a higher bid would be justified. Plus, the home had other amenities like a pool, which would bump up the price yet again. The auctioneer kicked off the bidding at $114,750 while Maehler set the maximum bid at just over $130,000.
So they are doing drive by’s (no, not low-riders and oozies) to estimate renovation costs, based on the condition of the windows, lawn etc. Sounds pretty scientific to me…NOT!
PROPERTY MANAGEMENT SUCKS!
The company plans to buy properties, paint them, install new carpets, appliances, and fixtures, averaging costs at around $25,000. Wonder what these seasoned pro’s will do when they walk in and see mold, or lead paint? Waypoint seems to be well-intentioned and makes efforts to keep homeowners in their homes during the transition process. However, only ten percent of homeowners have actually hung around to watch the transition. Shocker.
I just received this article from my student, Lisa. For those of you investors who buy and hold, and who have not yet found a bank that portfolios its own loans – you will find the following article as incredibly good news.
For those of you who don’t follow – let me explain. Several months ago Fannie and Freddie made a rule that they would not underwrite or guarantee more than 4 loans for any single person. Let’s suppose you had a buy-and-hold strategy to own 50 houses. If you did, you’d better have a LOT of cash – because you’d be hard pressed to find a lender to underwrite all those loans. Those lnders are out there, but in the Maryland market – you might find three, maybe four banks that portfolio their loans, and who are willing to lend on residential investments.
The article below states that Fannie is easing those strict 4 per person guidelines and in attempt to spur investment, Fannie is now willing to guarantee up to NINE loans per person.
I personally do not take investment property loans in my own name, but rather in the name of an LLC – but for those of you who do take conventional Fannie loans on your buy-and-holds, this is REALLY good news.
Uncle Sam taketh, and now giveth back. Let the pigeons loose!
February 10, 2009 Tuesday
Fannie Eases Its InvestorLoan Rules
BYLINE: Harry Terris
SECTION: MORTGAGES; Pg. 1 Vol. 175 No. 26
LENGTH: 787 words
Fannie Mae is loosening a restriction to encourage lending to property investors, a group that has been widely blamed for contributing to the housing meltdown but is also seen by many as critical to a recovery.
The government-sponsored enterprise told lenders last week that starting next month it will buy or guarantee home loans made to borrowers that have mortgaged as many as nine other properties. Currently, Fannie will not touch a loan if the borrower has financed more than three other homes.
The change is meant “to bring added liquidity to the investor segment of the market and help hasten the recovery,” Fannie said.
However, the GSE, which said it wants to make more loans available to “high-credit quality, bona fide … experienced investors,” is tightening other requirements for this type of borrower. Starting in June, an investor will have to hold six months of payments in reserve, rather than two months, to get a single-family loan approved by Fannie’s automated system.
Since they were seized by the government last year, Fannie and Freddie Mac have been directed to put more emphasis on supporting the housing market; like other prospective homebuyers, investors have been dissuaded from making purchases by tightened underwriting standards and forecasts that prices will keep tumbling.
“Investors are often the first sign of a stabilizing market,” said Joe Garrett, a principal at Garrett, Watts & Co., a consulting firm in Berkeley, Calif. “One of the things that leads the economy out of a housing crisis is when prices get cheap enough that investors start moving in and buying things. … Then the owner-occupants see that prices have stopped falling – they see how cheap prices have gotten, and they start to jump in.”
Fannie also said a desire to expand the range of potential buyers for properties with tenants played a role in the new standards. Last month both GSEs said they would no longer evict tenants living in foreclosed properties and would offer them month-to-month leases instead.
Robert Simpson, the founder and president of Investors Mortgage Asset Recovery Co. LLC, an Irvine, Calif., audit and fraud analysis firm, said he was wary of easing restrictions on investor loans. “The idea that we need to let investors back in” to shore up the housing market amounts to “an artificial bottom,” he said. “Let those prices come down to the point where normal people can afford them, and you’ll find buyers, but not at these inflated prices.”
Basing loans on a reasonable multiple of rent would be a safe way to lend to investors, Mr. Simpson said. Right now such buyers are “catching a falling knife,” with prices likely to tumble further. “The government, I think, rightfully has an interest in seeing that people own a home. … But I don’t believe the government has any interest in seeing that people are successful real estate investors,” he said.
Moody’s Economy.com Inc. has projected that prices will decline another 11% from the fourth quarter before stabilizing at the end of this year.
David Zugheri, the co-founder and chief marketing officer of the Houston lender Envoy Mortgage Ltd., said underwriting standards are “very different” today from years past, when a loan on a tenantless property would be granted on the basis of rents in its geographic market.
For refinancings, underwriters today typically look for income from the property “to support itself and then some,” he said. They also want to make sure borrowers “can stand on their own feet, even if the property is not bringing in any income at all, if it were vacant.”
As a result of such changes and market conditions, Envoy is “seeing less and less investment properties,” Mr. Zugheri said. When the private securitization market was operating, there was “no real defined cap” on the number of mortgages for investment homes. “People would come by with 20-plus properties.”
Mr. Garrett said that “the biggest problem” in securing loans for investment properties “is the lack of equity.”
“A few years ago you could’ve bought, as an investor, these same properties for 5% down or 10% down. Now it’s more like 30% down,” and in some cases 40%.
“Prices haven’t fallen enough in most places for investors to come in,” he said. “In areas where the prices have fallen low enough,” and rental income is enough to produce “a break-even or a positive cash flow, underwriters are approving those loans.”
During the boom, cash flow often got little attention, under the assumption that properties might be resold within three months, Mr. Garrett said. Now cash flows, debt coverage, leases, and the borrower’s experience as a landlord and independent financial strength are scrutinized, he said. “These are actually pretty good loans.”