HUD Temporarily Lifts 90 Day ‘Anti-Flip’ Rule

Effective February 1, 2010 the Department of Housing and Urban Development (HUD) will relax FHA rules that prohibit insuring mortgages on homes that are owned by the seller for less than 90 days – a move that could help expedite the rehabilitation and resale of foreclosure properties.

In a housing market where tighter lending requirements have made FHA financing the only option for some buyers, this 90-day policy has (1) kept some homebuyers from being able to purchase affordable homes and (2) prevented the quick resale of foreclosed properties, which affects the ability of communities to stabilize and rebuild.

Research has shown that the buying, fixing, and reselling of foreclosed properties is often achieved in less than three months time.

The temporary waiver, which will expand access to FHA mortgage insurance to many, will be in effect for a period of one year, unless extended or withdrawn by the FHA. With this in mind, now may be an excellent time to contact clients who have recently purchased a foreclosed property and those who may be on the fence about purchasing a foreclosure as a short-term investment.

“FHA borrowers, because of the restrictions we are now lifting, have often been shut out from buying affordable properties,” said FHA Commissioner David H. Stevens. “This action will enable our borrowers, especially first-time buyers, to take advantage of this opportunity.”

To ensure FHA borrowers are protected from inflated prices, the policy has certain restrictions, including:

All transactions must be arms-length and there can be no identity of interest between the buyer and seller.
If the sales price of the property is 20 percent or more above the seller’s acquisition cost, the lender must meet specific conditions for the waiver to apply.  Specifically, a home inspection and 2nd appraisal are both required.
Most Important Highlights:

Upfront Mortgage Insurance Premium to Increase to 2.25%

Seller Assist to be reduced to 3%

Most items to go into effect this spring or summer after a comment period!

FHA Announces Policy Changes to Address Risk and Strengthen Finances

New Measures Will Help FHA Better Manage Risk, While Maintaining Support for the Housing Market and Access for Underserved Communities

WASHINGTON – Federal Housing Administration (FHA) Commissioner David Stevens today announced a set of policy changes to strengthen the FHA’s capital reserves, while enabling the agency to continue to fulfill its mission to provide access to homeownership for underserved communities. The changes announced today are the latest in a series of changes Stevens has enacted in order to better position the FHA to manage its risk while continuing to support the nation’s housing market recovery.

The FHA will propose to take the following steps: increase the mortgage insurance premium (MIP); update the combination of FICO scores and down payments for new borrowers; reduce seller concessions to three percent, from six percent; and implement a series of significant measures aimed at increasing lender enforcement. U.S. Housing and Urban Development Secretary Shaun Donovan previewed the changes in December of last year, noting that the FHA would announce additional details before the end of January.

“Striking the right balance between managing the FHA’s risk, continuing to provide access to underserved communities, and supporting the nation’s economic recovery is critically important,” said Commissioner Stevens. “When combined with the risk management measures announced in September of last year, these changes are among the most significant steps to address risk in the agency’s history. Additionally, by continuing to provide affordable, responsible mortgage products, FHA will support the housing market’s recovery. Importantly, FHA will remain the largest source of home purchase financing for underserved communities.”

Announced FHA Policy Changes:

Mortgage insurance premium (MIP) will be increased to build up capital reserves and bring back private lending
The first step will be to raise the up-front MIP by 50 bps to 2.25% and request legislative authority to increase the maximum annual MIP that the FHA can charge.  If this authority is granted, then the second step will be to shift some of the premium increase from the up-front MIP to the annual MIP.

This shift will allow for the capital reserves to increase with less impact to the consumer, because the annual MIP is paid over the life of the loan instead of at the time of closing
The initial up-front increase is included in a Mortgagee Letter to be released tomorrow, January 21st, and will go into effect in the spring.

Update the combination of FICO scores and down payments for new borrowers.
New borrowers will now be required to have a minimum FICO score of 580 to qualify for FHA’s 3.5% down payment program. New borrowers with less than a 580 FICO score will be required to put down at least 10%.
This allows the FHA to better balance its risk and continue to provide access for those borrowers who have historically performed well.  This change will be posted in the Federal Register in February and, after a notice and comment period, would go into effect in the early summer.

********Reduce allowable seller concessions from 6% to 3%  **********************************

The current level exposes the FHA to excess risk by creating incentives to inflate appraised value. This change will bring FHA into conformity with industry standards on seller concessions.
This change will be posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.  Increase enforcement on FHA lenders Publicly report lender performance rankings to complement currently available Neighborhood Watch data - Will be available on the HUD website on February 1.  This is an operational change to make information more user-friendly and hold lenders more accountable; it does not require new regulatory action as Neighborhood Watch data is currently publicly available.  Enhance monitoring of lender performance and compliance with FHA guidelines and standards.
Implement Credit Watch termination through lender underwriting ID in addition to originating ID.
This change is included in a Mortgagee Letter to be released tomorrow, January 21st, and is effective immediately.
Implement statutory authority through regulation of section 256 of the National Housing Act to enforce indemnification provisions for lenders using delegated insuring process  Specifications of this change will be posted in March, and after a notice and comment period, would go into effect in early summer.

HUD is pursuing legislative authority to increase enforcement on FHA lenders. Specific authority includes:
Amendment of section 256 of the National Housing Act to apply indemnification provisions to all Direct Endorsement lenders. This would require all approved mortgagees to assume liability for all of the loans that they originate and underwrite

Legislative authority permitting HUD maximum flexibility to establish separate “areas” for purposes of review and termination under the Credit Watch initiative. This would provide authority to withdraw originating and underwriting approval for a lender nationwide on the basis of the performance of its regional branches
In addition to the changes proposed today, the FHA is continuing to review its overall response to housing market conditions, and continuing to evaluate its mortgage insurance underwriting standards and its measures to help distressed and underwater borrowers through FHA/HAMP and other FHA initiatives going forward.

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I’m in the middle of this crazy purchase and I’ll admit that if the negotiations were in the hands of someone else, this deal would have died weeks ago. It’s not that I’m some smooth talker, it’s that I’m not afraid to talk.

It seems everywhere I buy these days the other agent, appraiser and some lenders have had the fear of god placed upon them. They attempt to negotiate via the fax machine, facebook and in some cases Twitter. These people are afraid what they say may get them into trouble.  Real Estate is a people business

Things to work on today
1- always disclose, always     When in doubt disclose and if it’s agreed upon and legal your clear
2- be more bold, stand up for yourself and stop being a pussy
3- don’t meet in the middle, try and win one for your side.
4- write and offer - that’s right write and offer today

If your going to be a landlord make sure the property is something people will want to live in.  Close to schools, shopping, transportation etc.  The country is lacking clean, decent, affordable housing.

If your going to rent, make sure it’s a place you “could live in.”

Below is a post from Gregg Swann it’s good advice and food for thought.

• Phoenix Real Estate | What matters most in rental home investing … - Phoenix real estate: Whether you’re buying, selling, moving to or investing in a home in Metropolitan Phoenix/Scottsdale, Bloodhound Realty is the fiercely loyal, web-savvy guide you’ve been looking for - and we’ve got the best MLS …

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• Forget about flipping and rent

Unless you’re buying real estate at basement prices or your selling on terms, you should plan on keeping it as a rental property.

• The purchase price is just the beginning

Don’t forget about the closing cost, fix up costs, holding cost, cost over runs etc.  If you don’t factor in all the other cost, your going to have issues

• You’d better have cash

One of the things I have been preaching is that fact that investment money is hard to get.  If you want to survive and thrive in this market, plan on being a master at creating your own loans.

• Know your market

Know the trends of your market and be careful of a Micro and Mini Market.  These are smaller markets inside a bigger market.  If you’ve seen houses on one block for 200K and then houses two blocks away at 60K, these are Micro and Mini Markets and they can burn you if your not aware of whats going on inside your market.

• Know your tenants

The current economy is producing tough economic situations.  Don’t think that you have to put the first Tom, Dick or Harry into your place, qualify them and make sure your happy with what you see.

• Investing brings responsibility as well as rewards

At the end of the day, real estate investing is a business.  If you’ll treat it like one and make sound business decisions in this market.  You will have a tremendous increase in personal wealth in the long run.

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I learned how to manage my properties from a tenant who ran me ragged for almost a year.  They submitted an application and on paper they were pretty strong but 28 days later the wife called to tell me that her husband was injured at work and they were very sorry but they couldn’t make the Sept payment and asked if I could work with them.  “Sure”

One month of no rent turned into several.  Each month I got a new sad story and I fell for everyone. I thought I was being a decent person and in the end all i did was hurt them and myself.

Treat your investment property management like a business.  As hard as it may seem you need to remove the emotion and treat it like a business.  Rent is due on the first.  If not in my hot little hands by the third (check your local laws) then a three day to pay or get out is sent by certified mail.

I have learned that tenants will push you just like children, if you’ll draw a line in the sand early, it will make the management a whole lot easier.

By the way Kevin J was my tenant mentor.

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To find the ultimate investor loan look no farther than the property itself.  Today Seller Financing is the ultimate investor loan and here are some reasons why;

1. It’s easy to get
2. investors know that a fast sale will require some type of seller financing
3. doesn’t affect your credit report
4. do as many deals as you wish
5. sell all or part of the income stream for cash
6. create your own terms (interest rate, amortization rate, etc)
7. collateral based / not credit based
8. it can be traded / borrowed against

In my new video (Click Here) it talks about the need to focus on the paper in today’s market.  The sellers paper or seller financing will produce the ultimate investor loan.

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Twenty years after I started in real estate investors are still scrambling to find money for their real estate deals.  A few days ago I talked about having to go back to my real estate roots to find solutions to my everyday financing struggles.

Twenty years ago a flier showed up on my desk that said, “close more deals without any bank financing.”  I called the number, talked to a woman and bought a course on Seller Financing.

What is Seller Financing?
“Seller Financing” or “Owner Will Carry” are the magic words that make any product or service more salable.  In real estate, financing is created between the buyer and seller.  The seller agrees to receive their equity or profit in the form of monthly payments with interest over time (paper).   To create this type of transaction, a promissory note (IOU) is signed between the buyer and seller.  The promissory note is called the debt instrument.  A lien is then place on the property.  The legal name for this lien is Deed of Trust or Mortgage.  The lien is called the security instrument.  The buyer (borrower) makes monthly payments for a specific period of time at an agreed upon interest rate.  If for some reason the buyer (borrower) stopped paying the seller (lender) their payments, the lien (security instrument) allows the seller (lender) to foreclose and take back the property from the buyer (borrower).  That was a mouthful and I wrote it that way so you can see who the players are when seller financing is offered.

This created financing between buyer and seller is also called real estate paper.

With the collapse of the housing market together with the credit crisis, getting any type of real estate loan has proven difficult.  Those who were labeled “strong borrower’s” are having to jump through countless “documentation hoops” only to find out in the eleventh hour that their loan has been denied.

If you want to compete in today’s real estate investing market, you should arm yourself with the understanding and mastery of seller financing or real estate paper.  When you understand the time value of money, interest manipulation, discounting, defaulted real estate paper, compounded interest and yield, you’ll open up a whole different world to real estate acquisition.

If you have a real estate question feel free to ask it.
All you have to do is click on the contact us tab and submit it.

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I want to show you a letter from GMAC

$75,000 Reduced To $6,000

The owner took out a $75,000 2nd mortgage on the property.  I know how to manipulate the financing and because I understand the “paper principles” I was able to get the debt settled for .08 cents on the dollar.  The best part is that GMAC will accept the $6,000 as “complete satisfaction.” which made my seller extremely happy.

In the comments below, guess what it cost me to control this deal?

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