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New Mortgage Rules and Lending Regulations

Jul 30, 2008
Those financial wonder boys in congress have finally noticed there is trouble in the world of real estate finance and have put in place new mortgage rules and lending regulations. Should real estate investors be concerned?

Remember, these are members of the same political parties that have urged loose lending practices over the last ten years? Now that the country's entire financial system is beginning to unravel Washington is going to fix it?

As an investor, in the long run, I am betting the politicians will just make matters worse and we better be ready to make adjustments in our investing tactics.

Too Many Dollars

You may have noticed that over the last 12 months Federal Reserve Chairman Ben Bernanke has been pumping the country full of billions of paper dollars, borrowed from the Chinese, trying to head off a real estate and financial crisis. Oops!

Now Ben-the-Bountiful is telling Congress that he is concerned about the threats posed by rising inflation.

What a surprise! When you have billions of new dollars chasing the same number of goods, prices are going up - way up! That's why, over the past 12 months, consumer inflation is up by 5%. That 5% is a government number and some say you should multiply it by two to find the truth.

Even at 5% it would be the largest year-over-year gain in inflation since May of 1991.

New Lending Regulations

All the problems were not caused by Washington alone. Greedy bankers and mortgage lenders indulged themselves with crazy lending practices that even a casual observer could see would lead to trouble.

Now, the Fed is granting its self sweeping new powers to control mortgage lending. The new lending regulations will make it much more difficult for potential home buyers to find financing.

Think about that for a moment...

There are now tens of thousands of homes sitting vacant for lack of buyers, so your pals in government feel this is the perfect time to make it harder to get a mortgage loan.

Investor Must Look Elsewhere

We now have restrictive mortgage rules coupled with a recession that is curtailing the income of a few million people. There is going to be far less demand for the thousands of homes waiting to be sold. Investors should move carefully with a great deal of thought.

Homes are, and will continue to be, very easy to buy. The question is how to avoid catching a falling knife?

Sellers are ready to convince buyers that they are offering their home at 25% below market value. The catch is that "market value" was based on six month old comparable sales! How do you determine the real value of a property in a falling market?

Many people are going to be badly burned when they buy a home today and one year from now find the value of the home has dropped below the amount owing on the mortgage.

What's an investor to do? Look offshore!

Even small real estate investors can buy in hot markets like areas of Mexico, Panama, Belize and Argentina, for example. It's not unusual to find real estate in certain foreign markets appreciating yearly by 20% or more.

In a few years U.S. real estate will again be ripe for investment. Right now, with Washington meddling, the risk is too much for me.
About the Author
Mark Walters is a third generation real estate investor. For a limited time Mark is offering his big guide to finding private and hard money loans for real estate investing free. Free guide to private money loans.
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