Jim Klinge at Bubbleinfo.com has the scoop on a new underwriting rule that attempts to put a stop to buying a new house and then bailing on the old mortgage:
"Fannie and Freddie underwriting guidelines will require that borrowers applying for a mortgage to purchase a property, and who already own another, must verify that they have at least 30% equity in the old property - or they can't get a loan".This will go into effect August 1st.
7 comments:
This inability to 'walk away' as easily means that quite a few people will be geographically locked. Even worse, for them, they probably cannot continue to pay the old residence.
Got Popcorn?
Neil
Neil,
A large amount of foreclosure stories are "I bought a new house thinking I'd get "X" for the old one". This 30% requirement will really stem the tide of short-timer buyers as you say. If you're an FHA borrower putting 3% down on a 30-year, it's going to take a long time to get to the 30% requirement (even including appreciation). Of course, if the borrower can prove that he can make the payments for both properties, no problem.
Link to Guidelines
This certainly continues to take the weak hands out of playing the investment game.
Hey wait a tick-
weren't Buyers that already had a home usually always required to put 30% down on the second property ?
I thought "investment" properties have always required at least 30 % down, since they weren't the "primary residence" ?
Is this really anything new??
Spunky,
This is for converting your existing primary residence into the "second home", and the 30% rule is for that original property.
I'm looking at pages 5 and 6 of the PDF document -- it says that originally these were the only rules:
"• Rental income that will be generated from the prior principal residence is based solely on a fully executed lease agreement for that property provided by the borrower (now landlord).
• If the lender uses current lease agreements, the net rental income will be 75 percent of the gross rent from the lease agreement, with the remaining 25 percent being absorbed by vacancy losses and ongoing maintenance expenses.
• Minimum reserves are required for investment properties: 2 months for one-unit properties, and 6 months reserves for two- to four-unit properties. Minimum reserves are not required for second home transactions".
I remember buying a new residence with the intention of selling the old, and there was no requirement on how much equity we needed in the old.
I think the "buy and bail" people are probably some of the smartest boom buyers.
I mean, they realize they got screwed, were sold a grossly overvalued investment, and decide to stick the bank with the loss and at the same time take advantage of a buyers market.
As long as they dont need to make a major purchase in the next 10 years they will definitely make out better for it.
I dont see any moral problem with it honestly, banks are screwing people just as bad by foreclosing instead of writing down principal and renegotiating terms. Everybody is out for themselves in this mess, who can blame either side really?
(not that it hasn't been killed already) -
This will kill the 'investor' market.
further driving down prices!! YES!!!
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