Yes folks, I Beth Forbes, have a solution to the housing crisis! I'm a genius. The problem in a nut shell is over supply coupled with under demand.
I read an article a few weeks ago, Fear of Financing, written by Janet Guilbault that I felt accurately described part of the cause of the current crisis. The people who can qualify to buy homes are afraid to finance, afraid they don't qualify, afraid they don't have enough money for down payment and closing costs. The people who qualify are also afraid to buy, afraid that they will over pay, afraid that the bottom hasn't been reached, afraid they may lose their job.
So here is my super duper, genius plan. Rather than give a ridiculous amount of money towards rate reductions or throw good money after bad bailing out delinquent homeowners who will never NOT be delinquent home owners (until they become renters) lets lend some money to the only people who are not afraid!
I'm talking about real estate investors. Before you get all crazy and tell me that these are the people who got us into this mess, hear me out. I'm not suggesting lending money to speculators, people who can't verify their income or people with questionable credit ratings. I say, let's get a government program together that lends money to people who already own multiple properties, who have excellent and deep credit who actually WANT to buy up the over supply of inventory. There are a large number of investors who own multiple properties that actually produce income for them who would just LOVE to buy up some of the great deals available right now but are hamstrung by current lending guidelines that say they can't own more than 4 financed properties.
Here are the guidelines. 700 credit score (if you have multiple mortgages on your credit and can maintain that score you're doing great). Must have 5 or more years experience as a multiple property landlord. Must put 20% down on a single family or 25% down on a 2-4 unit. Subject property must debt service at 1.2. Total property portfolio must debt service at 1.0. Must have 6 months liquid cash reserves. Must be able to fully document income and have a total back-end ratio no higher that 45%. Must pay an upfront "loss reserve" payment similar to the upfront MIP on an FHA loan and monthly "loss reserve" payments much like monthly MI.
There are a LOT of people who would qualify for that, would love to take advantage of it and those people would start clearing out the over supply of inventory. Any plan that does not include provisions for these people is underutilizing a private sector solution to what is becoming a government problem. While I understand that this would still be a government subsidized program, I don't see how it's much different from the FHA.
The problem with home values is that banks continue to foreclose and there aren't enough buyers to keep up with the supply. Rather than subsidizing the buyers that already exist ( like the rumored 4.5% rate subsidy), let's make a whole new pool of buyers!
See, told you I'm a genius!
For those reading this who do not know my sense of humor please understand that this whole post was written with tongue firmly in cheek. (although I DO think it's a heck of an idea)
Beth Forbes Your 24/7 Loan Officer (484) 239-2014
Call me for all your mortgage needs. Areas of service PA, NJ, NY, CT, DE, MD, VA, SC, FL, MI and IN
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Beth, it IS the investors that will lead the way out of the trouble...that is if the finance people understand that and quit roadblocking that. I have found it VERY difficult to get people financed when they are buying investment properties...the downpayment requirements alone, on properties under market enough to make the loan "safer" are still rediculous.