Austin Investors:Fannie Mae or Freddie Mac may be rethinking loan limits for investors

In Austin, there  are real estate bargains to be had by bargain hunters but the mid sized investor has been side lined do to the 4 property limit imposed by Freddie Mae and Fannie Mac.

Freddie Mac Fannie Mae rethinking investor loan limits

The previous limit was 10 homes.  And most mid sized investors will easily reach the 4 home limit.  Your primary residence is counted in the 4 home limit.    This new limit pushed many small investors out of the game because they have to seek higher cost financing from non Freddie Mac/Fannie Mae sources.

At this point, we dont know which agency is rethinking the policy as we have not had any official communication from Fannie Mae and Freddie Mac.   I picked up on this rumor by respected Realty Times Contributor Kenneth Harney in his article  Investor Report:  Rethinking Controversial Limits .

Lets hope this is really going to happen.  PMI insurance wont underwrite investor properties — so investors have to put  down a 20% downpayment or find an expensive, elusive 2nd mortgage.  So the deals have to be really good to motivate an investor to take action.  If we can participate in favorable financing , that will sweeten the pot.

Percentage of investor home purchases at 17% in 2005 and 2006

I have always wondered what percentage of single family homes were aquired by investors.  I just heard fed Chairman Ben Bernanke say in a news briefing today that in the 1990’s non-owner occupied home loans were 5% of the total home loans.  In 2005 and 2006 — that number was 17%. 

Bernanke is talking about that national picture.  I am not sure how that number translates to our Austin Market.  If anyone knows what that percentage is — Please chime in!  I would imagine that we are about 10% or less in non-owner occupied loans. 

The problem is that investor loans come with more risk.  Borrowers are less likely to default on thier primary residence.  But on an investment property they are more likely to default.  When home prices fall below the loan value—  investors are more likely to default. 

Austin average sales prices were up 6.62% in February 2007 over February 2006.  The average sold price per sq. ft was up 4%.  So I dont think we are going to see the same foreclosure issues that the California and Florida are experiencing.   

What does an impending Recession mean to the Austin Real Estate Investor?

On Friday – the jobs numbers came out.  The country lost over 67,000 jobs.  If it walks like a duck, and talks like a duck it’s a duck.  These economic numbers are definitely talking like a recession.  The jobs are walking out of the US to countries like India and China.  US companies are tightening their belt.

What is an Austin real estate investor to do?  Dump you dogs.

The Austin real estate market is still a good market.  We are moving into our best season– summer buying season.  Well located property will still fetch a premium.  If you have a property that you don’t want to own long term– sell it now.

I am not saying dump your Austin portfolio.  No — Austin real estate market is one of the safest markets in the country.  We don’t have the same kind of sub-prime mortgage issues that a lot of other markets face.  Only 8.3% of our mortgages were subprime.  But a recession could quell the demand for property.  Liquidity remains an ongoing concern. 

Those in strong cash positions will be positioned to take advantage of deals in the near future.  Banks are going to require that investor borrowers have larger cash reserves than they did a year ago.  So it’s not only a question of the source and seasoning (where it came from and how long you have had it on deposit) of your down payment – its a question of your financial stability.   A credit score of 680 or more won’t be enough — it will take 20% down plus greater cash reserves on hand.  It’s going to get tighter and tighter. 

 This is why you want to dump your dogs.  It will take a well positioned, seasoned investor to be able to go through bank underwriting in the future.  Those seasoned investors are going to be attracted to prime properties.  If you have a dog– dump it now. If you want to be poised to take advantage of reasonably priced prime property opportunities in the near future– you had better get your house in order now.