Fannie & Freddie Destined for the Guillotine – Private Money & Owner Financing Expected to Increase
Fannie and Freddie may be on their way out, like Mubarak out of Egypt. I’m all for it, and… just like there will inevitably be some positive chaos as the Egyptian people take their next steps into democracy, the privatizing of the mortgage market will undoubtedly lead to a temporary disruption in lending and higher interest rates.
Funny concept… for some reason, private investors actually need to make a return on their money. Here’s an article about the proposed changes on CNN Money.
Even if they weren’t on the chopping block, according to Fannie Mae’s memo to lenders in late December, the government-controlled GSE will impose higher add-on fees in 2011. So, even if interest rates stayed artificially low, loans will still cost thousands more in some cases – even if the borrower boasts high credit scores and a substantial down payment.
I guess what this means to me is that:
- Traditional financing will likely become harder and more expensive to obtain
- Private money will be in higher demand
- There will be increased downward pressure on real estate prices in many areas
- Owner financing will increasingly become an important tool in closing transactions and supporting prices
- So, there will probably be a lot more private seller carry back notes created…
- Some of them will be worth something in the secondary market, some of them will unfortunately be worthless
I’m hoping that real estate and note professionals will be increasingly successful in getting the word out to sellers about how they can preserve both their real and paper assets.
Owner Financing Club is a membership/training site where we’ll answer questions about owner financing and notes, and regularly review live transactions so we can all get clearer about what it takes to put successful deals together, and help sellers create notes worth holding or selling.