Why is there a Limit on the Number of Financed Properties?

Question:  My client would like to finance two investment properties.   He owns three properties.  But there is a fourth property his ex-wife received in the divorce and his name is still on the mortgage.   He is having a hard time finding a lender?  Why?
 
Answer:   In 2008 Fannie Mae reduced the number of financed properties from ten to five, only to reverse it a year later.  Unfortunately, a majority of the lenders have refused to change back to the ten mortgage cap.   Banks are licking their wounds from the amount of investment properties financed back in the day that have since gone into foreclosure.   Remember the 100% stated, investment property program?
 
Every bank is different.   Most banks will only allow up to four mortgages, maybe five, as long as the fifth property is a primary residence.  The lenders allowing financing for up to ten properties typically do not have the best brother-in-law rates and may only loan on one property, limiting their investment exposure.
 
The issue with the property in the ex-wife's name is tricky.  Fannie Mae's guidelines state that if you have a court order (such as divorce decree); the lender is not required to evaluate the payment history.     Conventional Wisdom tells you that as long as there is  a divorce decree that spells out the transfer of title to the ex-wife and she can provide bank statements and/or cancelled checks proving she has been making the payments out of her own checking account, that would be cool with the lender.  But lender's don't think that way in today's market.    The bank's will have their own interpretation.
 
FYI:  Some lenders gauge the number of mortgages NOT properties.  So, if your client has three investment loans, and a first and second on his primary, that may be considered 5 mortgages.
 
Yes It Is True: One bank will not allow out of state borrowers to finance investment properties.  It is gonna hurt if the loan officer is not aware of that cute nuance until underwriting.