Nearly 370,000 investment properties have been refinanced through the government’s Home Affordable Refinance Program (HARP). That’s a huge number, especially when you consider that HARP was originally off-limits to real estate investors.
Begun in 2009, HARP was ntended to help homeowners who could not refinance because they lacked equity. To qualify you at least needed a solid payment history as well as a loan originated prior to May 31, 2009 that was owned by Fannie Mae or Freddie Mac.
The program was great for homeowners who were stuck in major foreclosure centers where property values had taken a beating. However, the original program was not open to everyone, to be included you had to be an owner-occupant — and not an investor.
With changes to the program, the investor use of HARP loans only began to show up on official tallies as of November 2012 — more than three years after HARP started. A year later, 368,000 investment properties had been refinanced, a figure which suggests that huge numbers of investors can still be helped by the program.
Why investors were originally shunned by the HARP program — and why investors are disliked generally — is equally unclear.
The Role of Investors
What’s curious about the widespread aversion to investors is that investors in the best case perform a public good. Truth is, you really want investors in your town.
To understand why just take a look at recent Census figures. In January the country had 115 million occupied housing units. Of this number 75 million were owner-occupied and 40 million were rentals.
Let’s imagine that the number of rental units was zero. Where would 40 million families live? The government is certainly unable to build that many public housing units and if it did there would be screams about taxpayer costs.
What would happen to home prices if investors left the marketplace?
“All-cash sales,” said the National Association of Realtors, “comprised 32 percent of transactions in November, up from 31 percent in October and 30 percent in November 2012. Individual investors, who account for many cash sales, purchased 19 percent of homes in November, unchanged from October and from November 2012. Last month, seven out of 10 investors paid cash.”
If we got rid of investors home sales would drop by nearly 20 percent. That would surely put a dent in home values and when real estate prices drop so do property tax collections, meaning a lot of state budgets would shrink and with them public services. Like, say, snow removal or fighting forest fires.
In the past two years we have seen massive single-family investments by six major Wall Street firms. They have purchased roughly 90,000 units and from the reaction in some quarters you might suspect they were spreading typhus.
Oh my, squeal objectors, such purchasers make it harder for decent local citizens to buy homes. Really? How is that possible? According to NAR, the inventory of unsold homes actually rose during the past year.
Let’s say it’s true and that Wall Street firms — for the sake of argument and with logic suspended — have forced up housing prices by purchasing 90,000 out of the nearly 10 million existing homes sold during the last two years. In 500 words or less, please explain why that’s a bad result if you want to sell your home? And for bonus points, please logically complete this sentence: I would rather have a vacant and vandalized foreclosed home next door than an occupied house owned by an investor because…
We ought to welcome real estate investment because more investment equals more demand, something important given that home prices remain 8.9 percent below the values last seen in April 2007. Instead, we say that investors generally cannot finance with FHA or VA loans. Investors usually face higher property taxes than owner-occupants and when investors do get financing they need more down and a willingness to pay higher rates. Also, of course, when the financial system plummets we rush to bail out Wall Street but purposely leave real estate investors out of such basic programs as HARP.
Hopefully more investors will see if they qualify for lower mortgage rates under the now-open HARP program and public understanding will evolve to the point where responsible investors are seen as welcome and desirable.