Tom McLaughlin: Government Fixes
Tom McLaughlin: Government Fixes
Wed, 06/13/2012 - 7:15am
Posted by tommclaughlin
I’m learning first-hand lately why so many business people are frustrated with government.
Not knowing much about the stock market, I persuaded my wife to invest our savings, which were in cash, in a house. Watching how the Federal Reserve is printing trillions of dollars with its “quantitative easing,” I figured cash wasn’t a good thing to hold.The house was a Fannie Mae foreclosure and we negotiated the price down as far as we could. When Fannie Mae took it back from the previous owners last fall, it hired a fly-by-night outfit to winterize it and that’s where the problems began.We wanted to carry a small mortgage on it so we could fix it up and rent it out, but we couldn’t get a low-interest mortgage loan because Fannie Mae, to whom our local bank would sell the mortgage, requires that the house be appraised.
We couldn’t get it appraised, however, because the seller is also Fannie Mae, and they couldn’t get it de-winterized. An appraiser has to come in and see everything working, but the fly-by-night outfit they hired to winterize it screwed up. The boiler cracked. Pipes burst. Fannie Mae didn’t want to spend the money to fix all that so we couldn’t get it appraised and qualify for the mortgage under Fannie Mae’s rules for mortgages - which banks must obey.Okay. Stuff happens, right? We negotiated the price down still further to cover the repairs and bought the house with cash. I figured we’d use a home equity line of credit on my existing home (which had been paid for) to fix up the investment house enough that it could be appraised, and then we’d qualify for a Fannie Mae-approved mortgage on it in just a few months.That was my plan, at least, until I discovered we couldn’t do that. Why? Fannie Mae regulations again. They say we have to wait a year before we can put a mortgage on the investment house we just paid cash for. After the sub-prime mortgage debacle - which Fannie Mae largely caused - they made another regulation to prevent house-buyers from taking out second mortgages. Didn’t matter that we wanted a first mortgage, Fannie Mae regulations prevent banks from writing any kind of mortgage until after we’ve owned it for a year.
Meanwhile I have this home-equity loan on my previously-all-paid-for primary residence with a variable interest rate. It’s only 4% - and that’s not bad - but it’s variable. The payments are easy now, but what will happen to interest rates in a year? Nobody knows, and that makes me nervous. All that Federal Reserve dollar-printing is bound to kick off major inflation and I’m worried that it will drive up interest rates before a year has elapsed.