Here is just a few of the issues some of my clients have come across in the past few months.

Client 1:

Condo refinance in Vienna, Virginia

A recently married client wanted to refinance his condo to a lower rate and get out of the adjustable rate loan program they currently have.   Both borrowers had excellent income, job stability and money in the bank.  The condo was converted to a rental unit when he married. Equity in the property: 30% or more, plus my client was willing to pay down the mortgage five percent more if needed.

The investor concentration (number of units used as rentals) was over 55 percent. I could only find two banks that offered a potential program. One was at 6.50% the other was 5.50% with several points attached. Now this isn’t someone that was duped into getting an adjustable rate mortgage (ARM), he went in fully understanding how the program worked, but when love hits, it can make the best laid plans take a back seat. Not one of the big banks or big lenders had any program to help out well qualified borrowers.  Fannie Mae and Freddie Mac have given investment condos the black plague treatment by not offering any type of financing for investment condo.

Investment property owners are not looking for hand outs, but it only makes sense to offer programs for well qualified home owners. Instead we have a homeowner that was willing to reduce a lenders expose (pay down the mortgage) and still could not get a decent loan.

Client 2:

Single family home refinance in Fairfax, Virginia

A client recently called to inquire about refinancing their investment property.   They owed a about $350,000 and approximate value (HVCC rules prevent me from contacting an appraiser to get a preliminary value) of $430,000 leaving approximately 19% equity in the property.  Fannie Mae and Freddie Mac have credit overlays for investment properties of 3% (roughly $12,900 in fees to Fannie Mae) this is before any other closing costs are added to the refinance.  Mortgage insurance companies are not even offering insurance products for investment properties.  Another rule, my client’s have a home equity line of credit on the home that was originated after the home was purchased causing the entire transaction to be considered a cash-out transaction.  So now, no lenders will originate an investment mortgage on a single family home with less than 20% equity.  Even if we subordinated the HELOC the equity would be less than 20% and lenders are not originating these types of loans either.

The mortgage crisis has caused lots of problems. It might seem like I am complaining, which I don’t think I am. But I am trying to bring to light issues with the system. I am not sure how to fix them. I spoke to someone at Freddie Mac recently and according to this person, both Fannie Mae and Freddie Max are concerned about being over exposed on a particular property. Well if the loan is already in their inventory and the homeowner is saving money (which makes it easier to make their monthly mortgage payment) isn’t that reducing their risk – not increasing it?

I feel that many people that are not in the trenches are making decisions that affect everyone. Tightening the lending guidelines is a good thing, but it needs to be done responsibly, not with a knee-jerk reaction that is making in nearly impossible to get a mortgage or check the value of ones home with a credible professional before spending $400 is not asking much. Yes, mortgages were too easy to get from 1999 to 2000. But everyone in the home buying and home financing process is at fault including the home buyer(s).