New mortgage rules, forms, disclosures, regulations, and restrictions are finally here. Some might loosen up as the market improves and lenders get hungry to make more money. Others are here to stay. Some brutally honest industry experts expect that they might get a lot tougher in the near future. They are indisputably a huge pain for many real estate investors. However, are they really that bad? Could they sometimes be a good thing for property investors? Can investors even use the harshest and most restrictive of these rules to their own advantage?
The Mortgage Underwriting Minefield
While some loan to values and credit requirements have been eased, it can be a completely different world after making a mortgage application.
This is when those fluffy home buying dreams can turn into sleepless nights and plenty of stress. New appraisal requirements, and more than in depth scrutiny of mortgage borrowers are tough. They can be annoying to everyone from Realtors to loan officers. While some argue that these are the fair consequences for years of abuse, other industry experts argue that some of these hurdles and associated expenses have simply been manufactured to generate new income streams for certain parties.
On the bright side, real estate investors are finding it a lot easier to get financing than regular homeowners. With so many prevented from borrowing, or simply just turned off, serious real estate investors have less competition for properties. That said, borrow now if you can. There are lots of deals out there to be had. There is a growing demand for rentals and resale properties as well. Leverage and scale while you can. Flip houses, buy and hold rentals, or resell them with owner financing.
Fraud Prevention
A report from Salon.com reveals just how wrought the mortgage industry is with fraud. In fact, it isn’t just mortgages. The investigative report ‘Massive new fraud coverup: How banks are pillaging homes – while the government watches’ shows just how wild it has become out there. This time there aren’t mortgage brokers or regular borrowers to blame.
Turning off the banks would mean admitting massive failure, and facilitating a major short term crisis. More quality control and fraud prevention is good for cracking down on big banks that have finally shown the most flagrant fraud. We need trust, and a sound system to keep capital fluid and people borrowing. Banks have proven they won’t self-regulate. The more fraud stop gaps put in, the better the system will recover and build trust, while old issues are cycled out.
The higher quality mortgage loans are, and the better mortgage loan performance gets, the lower the borrowing costs and compliance costs will be in the future.
New Bank Restrictions
Regulators hit America’s biggest banks with fresh restrictions in June 2015. Tired of banks openly shirking obligations to help distressed homeowners and bring an end to the foreclosure crisis, giant banks have received new bans on lending activity. This takes a lot of the competition out of the game. It might shut down some lending temporarily, but there appears to be few other solutions to preventing more bad lending and predatory practices. On the bright side, it paves the way for those with good business practices, and who are treating customers right. It also means that banks ought to be getting a fresh injection of motivation to work out short sales and start a fire sale on REOs. That’s great news for real estate investors looking for fresh inventory, and for communities around the country that have been plagued with zombie foreclosures.
