Real estate investors decry four-loan limit

Atlanta-area real estate investors, like their counterparts around the country, say a new four-loan limit is keeping good buyers away from foreclosed properties — and could actually prolong the recession.

The new policy, which limits to four the number of real estate loans by one person that will be backed by mortgage giants Freddie Mac and Fannie Mae, has spread to most local and national lenders. Experienced investors, frustrated and angry, complain the limits prevent them from buying bargain homes and possibly helping resolve the mortgage crisis.

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“How does it affect us? We’re paralyzed,” said Joe Ard, a Peachtree City investor who also runs Vestlet.com, a Web site that identifies properties for other investors. “I don’t need Big Brother watching me. I’ve got 19 houses. I’m making payments on them.”

The new policy, which went into effect Dec. 1, was designed to keep small-time investors from getting in over their heads and losing numerous rental properties to multiple foreclosures. The previous 10-loan limit was easier to get around, investors say.

The hard four-loan limit has no exceptions for income, credit status, assets or history of success as a real estate investor.

Ard says that restricts good investors — the most likely buyers for most foreclosures — from helping to turn around the foreclosure mess.

“The people who are going to pull us out of this are investors,” he said, “and we can’t help.”

Other Atlanta real estate investors agree the stricter rules will extend the current crisis by keeping foreclosures on the market longer and drive down home values.

“The four-house rule is going to keep us in a recession longer,” said Tom Hutchens, a Dunwoody mortgage broker and real estate investor. “It’s going to keep qualified buyers out of the market.”

Hutchens said three years ago he was making investor loans at 95 percent or more of the market value. At the same time, banks could not count the mortgage against the credit of the investor if he or she presented a contract to rent the property and cover the note. Those contracts were easily manufactured and not closely checked by loan officials, he said.

“I’m not going to say it was fraud,” Hutchens said, “but it was very loose.”

Banks now demand at least 20 percent down for investor loans, strict appraisals and are refusing to count up-front contracts as income to pay them off. They no longer allow cash-out refinances on the day of closing. Fannie Mae and Freddie Mac both now require at least a six-month wait before a reappraisal and refinancing to pull out cash.

Investors argue those reforms should be enough to ensure that loans go to quality investors.

They complain that limiting the number of loans keeps well-heeled investors — folks the government should be encouraging to buy houses during the downturn — from snapping up the bargain houses that are driving down values all over metro Atlanta.

John Adams, a real estate investor who owns dozens of homes and advises others through seminars, newsletters, a radio show, a Web site and a column in The Atlanta Journal-Constitution, said the limit has kept him from buying. He said he’s not willing to go to hard-money lenders or put up his own cash to buy houses.

“I’m sitting here as an observer,” said Adams. “I ought to be putting people to work.”

John Clark, an investor who lives in Dacula, said he’s trying to work around the limit by enticing private investors to put up money for house flips and rentals. Cash purchases aren’t covered by the rule.

Still, he’s unhappy about being unable to get a loan.

“If you are a full-time investor with good assets and documentation, ” Clark said, “you ought to be able to get a good loan. They have absolutely locked down the good group because of the bad. There are a lot of good investors out there.”

Comments

By Hilaire Laurent

Dec 22, 2008 1:41 PM | Link to this

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By Joshua Blank

Dec 10, 2008 3:48 PM | Link to this

For more information on foreclosures check us out at www.wreckstoriches.com

By Joshua Blank

Dec 10, 2008 2:22 PM | Link to this

My friends, this has been an issue for months. The solution is working with Community Banks in their Commercial Departments. These loans stay in the bank's portfolio. This is key. The selling of loans is solved by working with lenders NOT BROKERS. Lenders keep their loans on the books. If not commercial lenders, talk with credit unions as well. This little tip is key and I've purchased 15 homes in the last 3 months all with lenders. Go commercial, save residential for your home. To boot, these loans don't show up on your credit report as they are typically a business loan (ie made to your LLC not you personally).

By sean

Dec 10, 2008 10:03 AM | Link to this

all real estate investors/owners need to file real estate returns with the county tax assessors. filing a reale estate return gives you the opportunity to file a property tax appeal. as a real estate investor and property tax consultant, i don't believe the counties will lower tax values to where the market really is, and you will be stuck paying a tax bill on a value that far exceeds the current market value. words of advice: file your real estate returns by april 1st 2009!! www.searcie.com

By Ridge Runner

Dec 10, 2008 7:56 AM | Link to this

Investors are welcome to put up their own capital, and shouldn't care whether Fannie or Freddie will guarantee loans to them or not.

Those who want to get rich on Other People's Money, guaranteed by the state, will have to cool their heels for a while, since too many dead beats got on the "get rich on OPM" band wagon, driving through the many holes in the credit system punched by the "fair lending" zealots. The CRA freaks and their ACORN enablers, who protested, sued, and pressured the regulators and underwriters to open the door to crappy lending are now whining about the foreclosure rates. Well, boo hoo, you asked for it, and now you've got what you demanded. Live with it.

Until "credit" returns to the capital conduits, expect a fair amount of paranoia to prevail among those who set underwriting policy. Having destroyed faith in the soundness of these conduits, those who enabled them, or just turned a blind eye to what was going on, will have to live with the consequences. Next time, consider 'blowing the whistle' on the mania, and cooperating with your "good investor" friends to counter the malefactors, before they destroy your livelihood.

By TImetobuy?

Dec 8, 2008 4:26 PM | Link to this

Investors are frustrated because it has become incredibly difficult to get money to purchase what are some of the greatest deals we'll see in our lifetime. If we aren't at the bottom, we're close. You don't know where the bottom is until it's too late. Plus in many parts of Atlanta retail sales values (not foreclosures) actually either went up or remained the same.

By My 2 cents

Dec 8, 2008 2:31 PM | Link to this

Steve, you are correct in saying speculators had an impact on the current situation. Speculators were allowed to be just that because of FNMA's previous guidelines. The point of the article is that now that only legitimate investors can play (20% down, full income qualification, etc.) Fannie has gone too far the other way. Someone making a 20% investment and has the documented ability to afford the debt is not a speculator.

For those that don't want "your money" supporting lending, it will be "your money" that will be given to communities to clean up the mess. Heard about the $15 billion???? FNMA security at least is a balance of private money and public guarantee to get us back on track.

By investor

Dec 8, 2008 9:12 AM | Link to this

I close on my 2nd investment property today. I will wait a few months to see how much more the market is going to bottom out and then buy a couple more. The 4 limit rule will only further hurt areas with high levels of foreclosures. Property values will be hurt by the bank owned houses because they will continue to lose value due to theft and deterioration. People should only be allowed to acquire as many houses are their financial sitation allows.

By Steve

Dec 8, 2008 8:26 AM | Link to this

Speculators got us in the trouble we're in. We don't need them to get us out of trouble.

By No Problem

Dec 7, 2008 9:28 AM | Link to this

This new policy should not prevent any investor from accomplishing his/her goals. It only changes how you do business but it should not prevent you from purchasing 15 rental properties if that is what you want to do.

Any real estate investor affected by this new policy should contact my office so that I can devise a solution for you to continue to pursue your dream.

Link:John Folson, CPA, P.A.

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