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by Irene Lynn

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California, Florida, Arizona, Michigan, Ohio and Nevada are on a black-balled list with some mortgage insurers where you cannot get an investment or vacation loan. A mortgage insurer insures mortgages for protection against foreclosure. Banks are suffering epic proportions of foreclosures daily. With falling home prices, anyone who puts less than 20-25% down for an investment or vacation home will not be able to get a loan due to these mortgage insurers' tighter restrictions. In the past, you were able to put 10% down and carry mortgage insurance (PMI). However, those days are gone.

For those who think, "So what? It doesn't affect me," let me tell you the impact of this. The combination of stricter requirements and more money down requested for investors or anyone who could be looking for a retirement home, by purchasing it as a vacation home first will just keep adding more inventory to the real estate market.

Loose investment restrictions for loans were a big factor in our current real estate collapse for all types of loans. Those lenders who offered interest-only loans exacerbated the problem. Why punish those that have maintained excellent credit by changing the rules for all investment or vacation loans?

In the early '80s, when President Reagan was in office, he had a theory called "Trickle down economics." The theory meant that, if policies were created with incentives for higher income earners to invest in business infrastructure, it would in turn lead to goods at lower prices and create more jobs for the middle and lower class. In other words, to simplify this, if a cow eats his corn till he is full, some of that left over corn will be passed on for the birds and the squirrels. As funny as that sounds, if done correctly, it does work.

The reason I bring up this point is because if you do not have incentives for anyone who has excellent credit who has never missed a payment of any kind, and who wishes to invest in this depressed market where most prices have already fallen at least 20-30% - then why make those same people put more money down? They know how to manage their money. It was the ones that did not have good credit, nor knew anything about investments, that made the mistake of buying investment properties in order to flip them.

Investing is an important asset to real estate. I only wish banks would require people without experience in real estate to take a course like real estate agents do, prior to purchasing their first home. Then, perhaps, we would have never seen a mess like we have now. Seasoned investors know how to manage risk. An exception of course, is if there is greed involved. Then the most seasoned investor could also fail.

However, without investors, you wouldn't have people who would have become the landlords of today. And without landlords, how would those people who cannot afford a home, rent?

As a seasoned investor with rental property and one who bought a vacation home 3 years ago, I believe this move by the mortgage companies will stifle any improvements in our real estate market. We need investors to help those who cannot afford a home. Hence, "Trickle-down economics," or what was also known as "Reaganomics," could work in real estate today. However, these lenders and mortgage insurers will have to stop panicking and use some common sense.

Learn more about this author, Irene Lynn.

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