Buyers, Small Investors Get No Respect and No Mortgage Money

There are some really sweet real estate deals here in Maryland right now and I’d love to take advantage of them, but I can’t. Not because my credit score isn’t good, not because I don’t have a down payment, but because credit is so tight right now that sometimes good credit and a nice down payment just aren’t enough.

There are some really sweet real estate deals here in Maryland right now and I’d love to take advantage of them, but I can’t. Not because my credit score isn’t good, not because I don’t have a down payment, but because credit is so tight right now that sometimes good credit and a nice down payment just aren’t enough.

Some of those great deals are foreclosed homes owned by Fannie Mae, Freddie Mac, or FHA. These mortgage market giants are no doubt selling foreclosed homes in your town, too. They have so many foreclosed homes for sale that they’re thinking of making special deals with big companies that want to buy the foreclosures in bulk at discounted prices.

The thinking behind the proposal is that bulk sales would move a lot of foreclosures out the door and get the real estate market moving again. That’s true, it would. But who would benefit, and at what cost?

A bulk sale discount will put money in the pockets of big investors and take it out of Fannie Mae, Freddie Mac, and FHA’s pockets. (Since those agencies are government-owned, when they forgo a profit, the taxpayer loses.)

It would do nothing for people who want to buy homes to live in or small real estate investors who want to turn them into rental properties.

In 21 years of real estate investing, I’ve never seen a better market. In my market, interest rates are in the 3% to 4% range and housing prices are so low that I could buy a house and pay less for my monthly mortgage than I would to rent the same house. And I’m confident that when I paid off my mortgage on that house in 20 or 30 years, it would be worth far more than I paid for it.

Yet here I sit on the sidelines because lenders don’t feel they can trust me. You know what the big flaw in my credit is? I have a handful of mortgages on rental properties I own. The fact that I’ve been on time with my payments on these mortgages every single month for more than 250 months in a row now no longer seems to matter.

My best friend is a real estate agent struggling to get deals to the closing table due to overly tight lending standards and banks that take months and months to respond to short sale offers. My friend who processes mortgage paperwork is being slowly buried in loan files that she can’t get closed because every week the underwriters at her companies ask the borrowers for additional documents instead of approving loans.

And I’ve seen people lose their homes because they were too many payments behind — or not enough payments behind — to meet the rigid requirements to qualify for one of the many government assistance programs that were supposed to help them.

If the federal government really wants to move foreclosed homes in a fair and equitable way, it would find a way to get the mortgage market moving again for home buyers and small investors who are shut out of the current market. It would focus on providing mortgage financing to qualified home buyers and small investors to help more bank-owned home inventory and prevent more from building up. It would put more weight behind pre-foreclosure efforts, including loan modifications and short sales. It would come up with a refinance program for the 22% of home owners with mortgages who can’t take advantage of low rates because they owe more than their homes are worth. It would push banks harder to respond to offers on short sales in weeks rather than months.

If all those things were done, maybe the market would recover and there would no longer be a need to offer sweetheart deals to big investors make a profit.

What do you think of the plan to sell foreclosed properties to big investors?