Investor Report: Rethinking Controversial Limits

Here's some potentially good news for investors from the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac.

James Lockhart, who runs the agency, says there's been some "re-thinking" underway on the controversial limits on the numbers of rental properties investors can own if they're seeking new financing.
Both Fannie Mae and Freddie Mac have imposed a four-unit limit, reversing their previous investor maximum of ten units.
The rationale for the change, according to the agencies, was their belief that investors who own higher numbers of rental condos and houses pose a greater risk of default, foreclosure and loss for the companies.
The restriction effectively shut out many small investors from Fannie's and Freddie's standard programs -- and pushed them into much higher-cost financing from so-called "hard money" lenders.
In a letter to Charles McMillan, president of the National Association of Realtors, Lockhart said, "While no final decisions have been made, I can share with you the fact that the issue of raising the selling guide ceiling on investors loans is under active consideration at one of the (corporations), and reflects an appreciation of the role for investors in the housing recovery."
Realty Times obtained a copy of Lockhart's letter to McMillan, which was intended to respond to issues raised at the Realtors' annual convention in Orlando in November, where Lockhart spoke to two sessions. Lockhart did not disclose which company may soften its rule, but when one changes its standards, the other typically follows suit.
Lockhart addressed another issue of concern to investors and other buyers of condo units: The negative impacts of growing numbers of foreclosed units and bank-owned REO in condo projects.
Under current rules, Fannie and Freddie generally avoid loans in condominium developments where less than 51 percent of the units are owner-occupied. The problem is that both companies define REO and foreclosed units as non-owner-occupied, even though they are temporarily vacant and not owned by investors.
Lockhart said in his letter that "at least one" of the two corporations -- either Fannie or Freddie -- "is considering a clarification of the 51 percent (rule) that would exclude REO units from being counted as investor units … in the owner-occupancy ratio."
Lockhart offered no timetables for either of these key potential policy improvements, but investors may well see one or both changes within weeks.
At the very least, it's good news that the top executive regulating Fannie and Freddie recognizes the significant roles investors can play in helping the industry dig out of the current mortgage mess.