From Realty Times:
Call it the backlash after the boom: Major lenders and mortgage insurers are
turning off the money spigot for investors who want to buy rental houses or
condos with minimal downpayments.
The most dramatic cutback takes effect next week, when giant mortgage insurer United Guaranty -- a subsidiary of AIG International, the world's biggest underwriter -- says it will stop covering loans to investors in any of the thousands of Zip codes from coast to coast that it defines as "declining" real estate markets.
The ban includes all non-owner-occupied rental houses or condos -- including "mom and pop" two-to-four unit properties where the owners occupy one and rent out the rest.
United also is cutting off coverage of all condominiums and cooperatives
- whether owner-occupied or rental -- plus all second home purchases. It's even
refusing to look at loans to investors or owner-occupants that have limited
documentation in any market, whether declining or not.
Other major mortgage insurers are expected to follow some, if not all, of United's tough new restrictions in the coming weeks.
This is hardly surprising. Non-owner-occupied investment properties, in particular those beachfront condos in Florida, saw the greatest amount of price appreciation as the housing bubble inflated, and have crashed the hardest, resulting in multi-billion dollar writedowns at the big mortgage banks.
But it illustrates how interconnected the entire mortgage market is: a change in policy by a company which provides mortgage insurance effects the actual day-to-day business of real estate investors.
Most lenders have characterized Atlanta as a declining market, and as the latest Case/Shiller index numbers show, properties are losing an average of 5.6 percent per year. Anyone looking at purchasing investment property with any type of conventional financing is going to find it increasingly difficult to fund those deals.
The ability and resources to find alternate funding means is crucial for an investor looking to buy in today’s market. Whether it is raising capital for a significant down payment, buying subject-to or on a wrap, or looking at all-cash or hard money, investors are going to need to look beyond conventional non-owner-occupied loan sources when buying.
Photo: Spare Change, originally uploaded by riverwatcher09.