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Freddie Mac recently announced guideline changes that will greatly affect residential real estate investors.

Beginning August 1st, 2008 the following changes will go into effect:

1. A borrower may not have more than four financed 1-4 unit properties, including the subject property.
2. For cash out refinances the borrower must own the property for at least six months prior to refinancing.

For a complete update on new Freddie Mac guideline changes go to:

http://www.freddiemac.com/sell/guide/bulletins/pdf/bll042208.pdf.

What does this mean to the investor?

Under current guidelines for Freddie Mac and Fannie Mae an investor is allowed to have up to 10 financed properties. This change will prevent an investor who has more than 4 financed properties from obtaining a mortgage with lenders who sell their loans to Freddie Mac.

Currently Freddie Mac and Fannie Mae do not have loan seasoning requirements on investment properties. The second guideline change would affect investors purchasing properties with hard money loans, lines of credit or cash with the intent of refinancing to pull cash out. Under the new guideline an investor would have to wait 6 months in order to process a cash out refinance.

Fannie Mae and Freddie Mac are for-profit, privately capitalized government-sponsored enterprises that purchase the majority of conforming loans. Most all conforming lenders now underwrite strictly to Fannie/Freddie guidelines.

What about Fannie Mae?

Even though Fannie Mae has not given any indication if they will follow suit and make similar guideline cuts, it is very likely as Fannie Mae is often seen as the more conservative of the two entities.

Such a change by Fannie Mae would make it impossible for an investor with 4 financed properties to obtain financing for the purchase of additional properties through any lender conforming to Fannie/Freddie guidelines. An investor with five financed properties would not be able to refinance regardless of credit, income, assets or desired loan to value.

What can be done about these changes?

Aside from writing letters to your congressman, there is very little that can be done. Since lenders have few choices but to sell their loans on the secondary market to Fannie Mae and Freddie Mac, they are stuck following their guidelines for the time being.

If you are considering a purchase or refinance loan and have 4 or more financed properties, we strongly recommend starting the process immediately. Due to these guideline changes it is likely that the industry will see an increase in turn times and additional lay-offs by lenders nationwide. This means that it is possible to see longer underwriting times and stricter conditions. Do not hesitate to contact us directly for assistance with your current financing needs.

Author
Reina USA: Source

This entry was posted on Wednesday, May 21st, 2008 at 12:22 pm and is filed under Investor's Corner. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.