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Hello everyone and Welcome to another
episode of Selling Greenville your
favorite real estate podcast here in
lovely Greenville South Carolina I am
your host as always Stan McCune realtor
here in Greenville South Carolina you
can reach me any way you want to email
phone call text my contact
information is in the show notes like
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to listen to more today we're going
to be talking about this is just going
to be a short episode I think unless I
go on a rabbit Trail we're going to
be talking about a very interesting
development in the broader mortgage
world this deals with Fanny May so Fanny
May had was impacted by a treasury
Amendment recently and basically the
treasury is trying to limit its exposure
to limit its liability when it comes to
real estate so this is a this directly
impacts us when the treasury does things
with Fanny May and and I'm no expert in
all these backdoor economic types
of things but but my general
understanding is that the treasury has
agreements with Fanny May in place
that involves stock purchasing and that
types of of things with Fanny May
and and it's this kind of convoluted
way of the government backing our
mortgages and if you remember back in
2008 that was what brought the crash was
the government's involvement in the
mortgages was not a positive there
ended up being a lot of shady lending
practices that happened because Banks
were kind of of in essence they felt
like they were guaranteed to get paid
back one way or or the other and then
well that ended up not happening
we're not going to get into all of that
but the point is it's gotten a lot
stricter since then obviously it got
very strict and then last year it was
very interesting during covid we saw a
tightening once covid happened Banks
immediately started saying like I had
one bank right away that I've used for
for multiple investment properties
over the years they said we are not
doing any more loans on any investment
properties we're not owner occupants
only you know maybe some commercial
some commercial deals but nothing on
rental properties and that was crazy
that was shocking to me I mean this
wasn't even you know Midway through
the year that they heard this and and
you have to understand Banks they have a
portfolio so to speak of the loans
that they have they want to have a
certain number of these loans certain
number of these loans and they all kind
of balance out and it helps them to
mitigate risk but also have potential
for reward as well so some of their
loans you know are are higher risk
higher reward some of their loans for
instance to just a normal homeowner
living you know in their home with great
credit and getting a low interest
rate those are low risk low low rewards
so they try to balance it out with with
all these different things well the
treas Y is imposing on Fanny May a
risk measure similar to what the
banks did voluntarily last year when
they started saying you know what we're
we're backing off lending for rental
properties and and the main
restriction I'm interested in is that
there is now a 7% limit on their
acquisition of single family mortgage
loans secured by second home and invest
M properties in other words my
understanding is that out of the
Fanny May portfolio only 7% of The Fanny
May portfolio can include mortgages
towards second homes and investment
properties well that's not a whole lot
that is not a whole lot at all
7% and that's going to have a a
ripple effect if you're getting a loan
from you know if if if you're thinking
that you're going to get for instance a
conventional a conventional type of
loan you're probably going to be
impacted by this at some point you're
going to see banks that also just follow
suit that they see okay this is what vny
may is doing we need to tighten up as
well this indicates to me that the
government is looking down the road and
they're seeing risk of people purchasing
investment properties and going into
foreclosure that is the reality of the
situation
they're they're seeing something I don't
know what they're seeing but they're
seeing something that tells them hey we
need to tighten things up on all these
investors maybe there's a slew of new
investors coming into the market in
the past year or so and they're
worried about that maybe it's something
with Co maybe there's something you know
that they have looked at how many
people are behind on their mortgages or
how many people took advantage of
program programs last year and this year
where they didn't have to make their
mortgage payments or whatever the case
and they're looking at that and they're
saying oh man we're going we're about to
have a lot of people in a world of
trouble who knows I I I don't know what
they're seeing but they're seeing
something that makes them concerned
about lending on investment
properties and second homes if you're
an investor that means if you plan to
get normal Bank fin ancing and by
normal I mean not hard money not you
know from some kind of credit union it's
just like a conventional loan or
something like that to to purchase
you know a duplex or a quadriplex or
something like that you're going to
potentially run into some struggles
with that this year if you wait to the
second half of the year that's what I
think is going to happen they're they're
putting this amendment into Motion in
April
and we're going to see Banks really
tighten up from this in terms of what
they lend out and again some of them
might just tighten up voluntarily even
if they're not dealing with a Fanny
May type of loan just because they're
concerned about what the government's
seeing why is the government doing this
what is what what's going on behind
closed doors we're just going to follow
suit as well and voluntarily do that
this also makes me wonder what are they
seeing of course I mean that that's what
everyone wants to know are we about to
see a flood of
foreclosures come into the market that
would be a very interesting phenomenon
for sure and I don't think it's going to
happen overnight but I think
that we're in a situation here where
where maybe there is something to this
idea that maybe a year or two from
now we are going to see you know these
investors that that purchased
properties for the first time because
interest rates were low and they were
really eager to to buy in and they're
going to all of a sudden find out oh man
I can't afford my my mortgage anymore
and maybe they get a few months
behind and of course the foreclosure
process takes a while but we could
very well I could very well see that
happening and see us in a couple years
having a little run on foreclosures
who knows that is probably the most
likely scenario whereby at least the way
things currently are whereby we would
see the market flip from the insane
sellers Market that is right now into
more of a buyer
Market I I don't see again I don't
see that happening you know anytime
soon it could happen in a couple of
years yeah yeah it absolutely could and
I will say this I see PE people all the
time purchasing
duplexes duplexes are are an easy one
to to look at because most of the time
people buy duplexes they're not living
in them almost always they're renting
out both sides of the duplex and you can
get a you can pretty easily extrapolate
what a duplex is going to rent for I
mean we've got pretty standard rental
rates for for multif Family Properties
in this area it's pretty it's pretty
predictable and I see all the time
people
purchasing duplexes and properties
like that for prices that I know their
cash on cash return is either really low
or they have a loan on that property and
and that loan combined with the
property taxes and everything else they
are probably not
matching in terms of the the income
that they bring in they're expenses
they're probably losing money on those
properties well what's going to happen
over time those people are going to need
to get out they're they're going to
realize that that they need to get
out of those properties and some people
will learn that before it's too late and
they'll put their property for sale and
and sell it but the thing that people
are assuming is that home values are
going to continue to go up at the clip
that they have and that might be a
faulty assumption as well particularly
when you're talking about investment
types of properties if if you buy a
duplex and the purchase price you pay
for it makes it to where there's no way
it can cash flow unless the price of
rent goes up quite a bit you know in in
the future in future years how do you
think that you're going to then turn
around and sell that duplex for
significantly more than what you paid
for it It's tricky because rental
properties appreciate in a different way
than owner occupied primary residences
appreciate they they you know primary
residences
appreciate just pretty
formulaically but rental properties
their appreciation is both a it's a
combination of of several different
things it's a combination of the area
It's a combination of if they're in a
transitional area is that transitional
area in improving at a faster clip than
than other areas what rent are
they bringing in you know if you can
take a rental property one of the one of
the best strategies for adding value to
a property get a rental property
purchase a rental property from someone
that hasn't raised rents in 15 20 years
their tenants are paying 350 a month
and the property is in disrepair you can
repair the property and maybe you can
get rents up to seven or 800 a month
I've seen this happen well you have just
added a ton of value value far beyond
just the repairs that you did now you've
made that rental property much more
valuable just based on the cash flow
so so they appreciate in a different way
at some point the cash flow becomes more
important than the area to be completely
honest for for some of these properties
that are particularly multif family that
are uniquely going to be second homes
and investment properties now if it's
just a single family home it's it's not
quite the same a a standard single
family home even if it's used as a
rental property will be less pegged to
how much rent money it's bringing in
but but for a lot of us multif family
is really the best way to to cash
flow rental properties in this market
but you have to be careful because we're
seeing these warning signs now that
maybe there will be some landlords
that get in over their heads you don't
want to be one of them obviously
additionally however you might find
yourself in a situation here in a few
years where maybe there is an influx of
opportunities there's not a lot of
opportunities right now to purchase
these good multi Family Properties to
purchase these good invest these good
rental properties you have to be very
selective maybe a few years from now
we're going to find that people got in
over their heads which is not a good
thing I'm not celebrating that but
just being realistic just being honest
here maybe that will open up the door
for some more opportunities for
investors we don't know there's more
questions than answers when it comes to
why Fanny May is doing this but I think
it's an important development it's an
important consideration it is going to
impact people this year it will impact
them we already saw it impact them last
year to an extent as I already said but
now Fanny May tightening things is
going to cause everyone to tighten
things a little bit more than they did
even last year so keep that in mind as
your game planning for the year it may
become difficult for you to get
financing on investment property is the
second half of this year I could totally
see that happening or it could be
month-to-month some of these Banks
they may look at it month-to month and
they may say okay this month we're not
taking any more next month we'll
re-evaluate whether we want to take on
more loans on on rental properties
I'm not sure I'm not exactly sure how
they're going to respond to this it's
it's it's kind of uncharted waters to a
certain extent it it's a it's a
strict response in my opinion to
whatever it is that the treasury is
seeing and so we'll just have to
monitor it I just know last year second
half of last year I had an awful time
getting financing on a couple of
properties that I wanted financing on
that that were rental properties that
said I was finally able to pull it off
with a few headaches and so that's
something that I can help you guys with
as well if if you do run into a
situation where you're struggling with
getting financing you're probably
looking too conventional you're probably
just you know
looking at the wrong Banks usually
there's someone out there at least
until the fourth quarter the fourth
quarter can get a little dicey but at
least through the third quarter there's
usually someone out there that is
willing to finance investment
properties if the numbers make sense and
so I can help you guys with that that's
part of what I do part of the value that
I provide is that I've networked and
worked with all these lenders in a
lot of different spaces over the years
and and I can help you guys out with
that out with that I don't know what
just happened to my throat I can help
you guys out with that as you need it
just let me know all of my contact
information as always is in the show
notes that's it short episode today I
just wanted to bring this to you you
guys to your attention because I think
that this is something we don't have all
the answers to it yet but it's an
important thing to follow but you can
reach out to me for any reason with my
contact information in the show notes
please go ahead and give the show a
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I appreciate all my fans out there I
appreciate you guys thank you once again
for listening I hope you have a great
rest of the week
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