Well, by most any expert, folks, we are in a housing crisis. The bottom has fallen out of the market, foreclosures are skyrocketing, consumers can no longer qualify for loans, credit is tight, and the first-time homebuyer tax credit has expired. Loan modification programs have had mixed reviews. Unemployment is still high.
So what to do? What more can the government do to stimulate investment?
Well, I may not have the solution, but I am quite sure this is not the answer:
According to my investor colleagues, Fannie Mae just added a clause in their REO (bank-owned property) sales contracts that investors can't make more than 20% profit within 90 days of buying a property.
Hmmm? Let's limit the potential profit without taking away any of the risk, and see if we can reduce housing inventory this way? Doesn't make sense to me.
You know that house the bank foreclosed on down the street? The one with the lead paint, asbestos and overgrown yard? You know, the one that went to auction on the courthouse steps, and that no one bought there? Yeah, that's the one. Now the bank owns it, and they are trying to sell it. No one wanted it at the discount price they last offered -- and now Fannie Mae says to investors "wait, wait. you cannot make too much money on this!"
"We want you to buy it,of course. That stimulates the economy. We want you to fix it up, of course. That employs workers in construction, and improves the neighborhood. We want you to sell it, further stimulating the economy -- oh, but there is one catch: you can not make more than 20% profit!"
And do we think this policy will help banks get rid of their REO inventory? How many more banks have to fail before Fannie Mae changes this hare-brained requirement???