HUD Loans – The investor community got excited (me included) when the news was released that the 90 day seasoning for sellers to be on title had been waived.
For those not familiar, FHA loans are a great tool for homebuyers who have less than perfect credit and little down payment. There is not a comparable loan program today to help the average person buy their home with little down (especially in depressed real estate markets).
So while FHA loans are the perfect loan for a large segment of people, they traditionally have had a 90 day seasoning requirement for sellers. What this means is that a seller of a property must own the property for a full 90 days before entering into a contract to sell it to someone who plans on getting an FHA loan to buy the property. The only exception to this was if the seller was a chartered bank.
This was put into place to discourage “flip” situations where an investor would buy the property for a discount and then mark it up greatly in a short period of time. While it can be argued that FHA should not be concerned about how much profit a seller makes, and you would have a good argument, the fact remains:
…at some point they noticed they had a higher number of defaulting loans on properties where there was a recent flip, then they did on the rest of the loans they were doing. For whatever the reasons..
So those investors who took the risk upon themselves to buy a property at the courthouse steps, or otherwise and fix it up and put it for sale would tend to shy away from buyers who needed FHA loans to purchase because of this seasoning requirement.
The waiver of this made big news in the investor community, because it appeared that now the bank waiver was opened up to help the industry move all of the foreclosure properties for sale.
Well, not quite, it would appear…
Here is the link for the actual HUD document regarding the waiver.
Here is the crucial part:
“Section 203.37a(b)(2) of the FHA regulations, 24 CFR 203.37a(b)(2), is hereby waived for a period of one year from today’s date with regard to sales of properties acquired by mortgagees, whether sold directly by the mortgagees or by their subsidiaries or by vendors to whom they have transferred titles to properties for the purpose of effectuating sales of those properties.”
Raises the question whether any foreclosing party and their agents can use this now, or just those banks that we had mentioned before….one thing we did confirm….if you are buying to fix and sell right away, you do not qualify for the exemption. Rats…
More to come on the foreclosing lender aspect….
Craig Garcia is a Managing Member of Bridge Capital Lending, LLC. A mortgage and investment firm specializing in Investor Loans that Use Private Lenders that fund Hard Money Loans. Craig can be reached at 877-8GO-GREEN or 954-217-9518.