Sorry I diverged a bit from the original point, patientrenter. I started to address housing subsidies in general (e.g. mortgage interest deduction) rather than specifically the Freddie/Fannie guidelines as they pertain to buying a personal residence when one already owns a rental.
The fannie/freddie “subsidy” that is being complained about as supporting rich a-holes pertains to the ability for someone to qualify under Fannie/Freddie Guidelines for a principal residence when owning other property. Consider two examples:
1. Potential Homebuyer 1 –
Owns a Franchise, which after expenses produces about $300 in monthly investment income. Based on what his franchise would sell and the loans he has against it, he has about 75% LTV in the business. This poor homebuyer gets a subsidy from Fannie/Freddie to buy his house because he can count his investment income.
2. Potential Homebuyer 2 –
Owns a formerly foreclosed single family rental property in Temecula that produces monthly income of about $300. His LTV is 75%. This rich a-hole does not gets a subsidy from Fannie/Freddie to buy his personal residence because he cannot count his investment income since it is income property and his LTV is more than 70%.
Is this fair ? Why should we subsidize some of the rich a-holes and not others based on their allocation of investments ?
I don’t think the Fannie/Freddie rule is based on a well-thought out analysis on where they want to provide subsidies. It is strictly based on perceived risk.
As for removing all housing subsidies ? What do people think of removing the deductibility of mortgage interest for a primary residence ?
