Fannie Mae Rescinds 4 Property Limit for Investors

If you read the Fannie Mae official announcement -- you get the sense that the nationalized group is getting with the program. This excerpt comes from the lead paragraph: "Fannie Mae is committed to providing financing opportunities for high-credit quality, bona fide investors. Experienced investors play a key role in the housing recovery."

The use of the phrases "high-credit quality," "bona fide" and "experienced" was a conscious one, by the way. Fannie Mae is averse to first-time investors and other foreclosure opportunists. Instead, it wants to serve individuals with a history of owning and successfully managing rental property.

To that end, Fannie Mae will now finance the purchases of one-unit homes for investors with an interest in between 5-10 properties, provided that all of the following guidelines are met:

· 25 percent down payment on the investment property;
· Minimum credit score of 720;
· No mortgage payments late within the last 12 months;
· No bankruptcies or foreclosures in the last seven years;
· Two years of tax returns showing rental income from all rental properties;
· Six months of principal, interest, taxes and insurance reserves on each of the financed properties.

And lastly, to reduce fraud, Fannie Mae will now require all real estate investors to sign a form granting lenders permission to verify supplied tax returns against the official, IRS-filed version. This document is less commonly known as a 4506-T.

But lest we think this guideline change is Fannie Mae's olive branch to the people, let's remember that our nation's banks are holding record numbers of foreclosed homes on their balance sheets right now while the most likely buyers of those homes have been to-date locked out from financing.

The rollback gives a secondary benefit to investors, too -- even those not buying additional property.

See, when the four-property restriction went into effect it was a surprise, 11th-hour announcement made on the Friday before Fannie Mae's nationalization. This date, meanwhile, has come to be known as the day before the refinance boom started.

So, on the following Monday, when mortgage rates instantly plunged three-quarters of a percent, homeowners with five properties or more found themselves ineligible.

They couldn't refinance their investment homes; they couldn't refinance their vacation homes; and they often couldn't refinance their primary homes, either. While rates fell for nearly every borrower class, experienced real estate investors were locked out. Today, that's no longer the case. "High-credit quality, bona fide" real estate investors are back in the game.

It's good for them; it's good for the banks; and it's good for housing.