Fuel, But No Fire

While the Feds have finally targeted lower mortgage rates as fuel to jump start the flagging housing industry, Fannie Mae (now a government agency) has all but dampened the flames by taking on an anti-investor policy.

Investors have long been required to pay higher fees and make larger down payments to buy rental property. Guidelines in place for conforming loans were sound precautions against overly-levered, risky speculation in home loans. During the boom, things got out of hand - not with agency-sponsored mortgages, but with non-conforming loans that allowed "investors" to buy with no money down and in unlimited quantities.

Now Fannie Mae has turned off the spigot. In many cases, the fees for financing or refinancing investment property has doubled from 1.5% to 3% of the loan amount. More draconian (since investors can absorb fees by raising rents) is the limitation of property ownership to a total of four (4) financed units, from the old limit of ten (10) units.

You may say, "Who cares about investors, they caused this whole problem anyway."

Well that is not true (as the Blog says, I caused it). Investors did not cause the problem. Speculators caused the problem. Investors put their money on the line. Investors buy low and hold rental properties for the long term. Investors revive slow housing markets and create opportunities for renters and eventual homeowners.

Fannie has got it all wrong. Instead of cutting them off, they should be encouraging prudent investment by requiring sizable (20%) down payments and market-based fees. Because it is the investor that will turn the market, not the first-time buyer. The investors have the cash ready and are willing to buy at these low prices. The first-time buyer is scared stiff.

Want to light a fire, Fannie? Light a match to the investor class.