The End of Fannie & Freddie, The End of Flipping Houses?
As the government struggles to pay its bills more calls to kill off Fannie Mae and Freddie Mac are hogging the news headlines. So will shuttering these mortgage giants mean the end of flipping houses for real estate investors?
In reality both Fannie Mae and Freddie Mac could certainly survive if privatized. They functioned very well like this before, even though there was always the impression that they would be bailed by government in a crunch, and certainly they probably would be again if they ran into trouble, being deemed “too big to fail”.
In fact, privatization of these massive mortgage houses would certainly demand they become more competitive and work to become solvent and produce profits for shareholders. This would likely result in an even better line up of loan products for home buyers and real estate investors.
However, many point to the real problem (and include FHA) as being continued pushes by the government through various administrations to ease down payment requirements and not demand higher rates for making riskier home loans.
However, it is interesting that the FHFA has recently announced a return to the subprime style ‘No-Doc’ mortgage loan, at least for refinancing delinquent homeowners, and is being heralded as the ‘solution’ to the foreclosure crisis. Perhaps they shouldn’t have gotten rid of them in the first place?
Anyway, real question is, if Fannie and Freddie are done away with altogether, or at least if low down payment loans become a thing of the past, and 20% down is the new standard for all (a reversal of current trends), will it be the end of flipping houses and a crippling blow to real estate investors?
Fortunately on the acquisitions side transactional lenders are still offering 100% plus financing, regardless of credit, employment, assets or appraised value.
However, on the sell side it could certainly mean a need for some investors and sellers to tweak their strategy.
Those already focused on true wholesaling and that are flipping houses to buy and hold investors as rentals as their end buyers won’t likely see too much change in business. In fact there ought to be even more of them busy acquiring rentals as the demand for them, and yields will likely soar as fewer individuals and families will be able to buy homes in the short term.
Cutting off more low income home buyers may stall or slow current double digit increases in home prices temporarily, but you can bet it won’t be long before that continues, whether thanks to innovative new down payment assistance programs (which might be a better bet for the government and banks to engage in rather than high LTV loans anyway), or a further surge in funds and international buyers scooping up U.S. rental properties, as the market will prove to be more solid than it has in generations.
So the bottom line is those relying on retail home buyers with high loan-to-value financing might feel a pinch if these things ever happen, though true real estate wholesalers using transactional lenders to fund their property purchases and flips shouldn’t have any reason to sweat. Just make sure you are tapped into the best funding sources now and are positioned to market to the best buyers.
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