Fannie Mae has good news for investors

As of March 1, 2009, Fannie Mae increases its loan limits from 4 mortgages to 10.

Finally, investors are not snubbed, but being allowed to help in the housing recovery.

In the last 12 months Fannie Mae pulled its stamp of approval of investors with more than 4 mortgages for fear they were risky and toxic. True, some were. Many speculators did get in over their head and create some damage to the housing industry. Many of them used the subprime product, though.

But realistically, the investor with more than 4 mortgages, may have been the professional, savvy, and experienced investor that our economy needs. And we need them active, not with one hand tied behind their back. This is the period where foreclosures are rampant. Some cities are 1 in 34 homes are foreclosures. And some neighborhoods are 1 in 10. These are conditions that investors, people with money, willing to take chances, thrive in.

And when the housing market desperately needs risk taking buyers, these buyers were limited to 4 mortgages. Most of them using one for their Primary.

Not any more. These investors can jump in at auctions, use their capital, and refinance down the road if need be. They can refinance their current properties, that may have adjusted and been quite painful on their monthly budget.Making this change will allow more credit to flow, and release some toxic assets that banks need to get off their books.

OR SO WE HOPE!!! It's all up to the investors.

In short, here are the new guidelines:

720 credit score
25% downpayment for a 1-unit (30% for a 2-4 unit)
No mortgage delinquencies in the last 12 months
6 months of reserves for each investment property.

Fannie Mae Disclosure

Are you glad you escaped the housing bubble?

Kudos to you, if you missed the last housing boom, because you missed the big BUST too.

Investors and homeowners alike, that sat on the sidelines during the last real estate boom, are NOT kicking themselves today.

They may have watched home prices in many markets around the country go up 10% - 20% in one year, and thought...

"Boy, this market is really heated, I'm staying out of it" or "I wish I got in earlier, these prices today are ridiculous"

But, they did not buy earlier, and they did not buy when the market was heated, and they certainly did not buy during the free-falling bust.

What a sigh of relief. No Loss... but, No Gain.

---

Historically, real estate has gone up approximately 4% per year since 1910, almost 100 years. [reference Robert Shiller of Case Shiller from Irrational Exuberance.] Consider inflation, and that hardly seems like a good investment. Consider, leverage by financing real estate, and positive cash flow by income received, and now it looks like a phoenomenal investment.
It can look like a bad investment when you pay all cash, speculate on the appreciation, or have a large negative cash flow. Avoid those things and buy for the long term, and it is a great return.

Let's assume the most recent bust, has erased the gains of the boom. 08 erased 07. 09 erases 06. In some markets 08 may have erased 05 too. BUT, never the less, investors that bought in 2000 still have a 20%-24% gain on average. The same would also be true for some that bought in 06, may have to wait for 2016, but could receive 20%-24% gain as well.

How many times has real estate posted similar losses? The last similar drop was 2 generations ago. It is safe to say, it may not happen again in our lifetime. But if it does, it seems to wipe away recent gains, not total gains. Many buyers that are taking advantage of prices today, are saying, "We are happy to afford today's values, as we were priced out of the market a couple years ago." (not priced out a decade or more ago)

Comparatively, if you invested in the following companies for a decade, do you think you would have similar gains, let alone any of your investment back?

Motorola, Sears, Ford, Citigroup, Fannie Mae, Yahoo, Qwest, Firestone, American Motors, Texaco, Pan Am, Worldcom, Enron, Lehman Brothers, Circuit City.

Energy, Telecom, Finance and Retail Giants... no investment is 100% safe, including real estate. But many of the above companies no longer have any value left, or are facing that fate. Even, I am guilty of owning several on that list, based on raving reviews or a sparkling prospectus. No one could predict their destiny any more than the recent boom/bust mortgage crisis. Whenever something is too good, it usually isn't good forever.

This is not an argument of stock vs. real estate. Rather, I am saying, Real Estate can be viewed as a safer investment, without surrendering your entire investment to a entity that declares itself bankrupt, or corrupt CEO running the company into nothing. There is still something of value with real estate, even in the down turn. Either a roof over your head, or renting the roof over someone else's head.

If the worst is behind us, it could be another 60 years before you have to worry about losing your initial investment in Real Estate. And if you truly owned and financed said property during that period, you would own it free in clear long before that time came!

But if you want to buy or invest, you have to jump in sometime. But when?

The safest time to jump in will be after the bust. No one can predict the perfect time, but watch and see who is buying today, and don't just be the watcher.