Ken Cook posted something today that was specifically about investor properties.  Here is a link.  Go read it… you should read his blog anyway.

What does it have to do with Cram-Downs?

Let me touch a couple of high points of Ken’s post.  These are the requirements to get ten Fannie Mae investment properties:

• Middle Credit Score at least 720
• Fully Documented income
• 25% down
• 45% or less Debt to Income
• 6 months of liquid reserves for every property

Did your breath catch on that last one?

For my agent friends that are reading this… the ones that are thinking that cram-downs would be good because they know so many folks that are stuck in homes and the values have dropped… think about what that last requirement would do if it were attached to EVERY loan.  Add the 25% down requirement…

What is that going to do to sales?

For a $200,000 home, the buyer would HAVE to be coming into the deal with $50k in down payment.  They would also have to be packing another $9,000 in liquid reserves.  I don’t know about you, but that would be kicking a LOT of folks out of my pool.

And that is on top of the two point rate jump that a Cram-Down provision would cause.  Right now, that means that rates would be jumping from 5.5% to 7.5% (36% increase?).  So, every month that they will be paying more to live in the home, too.

It doesn’t really look that good from the perspective of a buyer or seller, either.  The buyer case is stated above… but if you are a seller, why would it hurt?

Those requirements are going to drain the prospective buyer pool.  And if there are no buyers, the price drops.  And isn’t that the problem that we are facing anyway?  So, to help people that have seen their values eroded, passing laws which will further erode value is the right strategy?  Doesn’t sound logical to me either…

Simply put, allowing judges to cram-down personal loans, like they can investor loans means that we will have investor kinds of rates.  But it is worse than that…  Prices for investors are somwhat supported by non-investors and their easier to get, cheaper loans… and higher price structures.  We would be removing that, and effectively deflating the market at the absolute wrong time.

from GwinnettGarageGuy.com