Norada Real Estate Investments

FHA's Gone Nuts!

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The FHA has gone crazy, making sweeping new changes in several policies. You've got to keep these in mind when clients consider FHA loans.  Here are some of the most extreme changes:

  • Raised up-front costs for insurance
  • TRIPLE down-payment requirements
  • Cut seller concessions by HALF!

The government hopes the new policies will help the organization better handle risk. And they've got every reason to be nervous. 9% of all loans that the FHA insures are past due. FHA claims have been skyrocketing with the organization paying out of its capital reserves.

30% of all new loans (and 20% of refinances) are backed by the FHA. This is a 1,000 percent
increase over 2006. This seems like shaky ground for the company. The FHA is hoping to scale back to pre-crisis times and minimize their exposure.

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Government Handcuffs Real Estate Investors

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Leave it to the government to take a crippled housing market (which they helped destroy) and make it worse by prolonging its recovery.

Regulators have taken a loose and passive role watching the housing bubble inflate.  Now, true to their nature, regulators are making the problem worse with their slow response and lack of real-world solutions.

, in my opinion, have been unfairly squeezed by the ever tightening underwriting guidelines.  We are dealing with larger down payments, higher credit scores, larger cash reserves, and lower debt-to-income ratios.

As a , Fannie Mae and Freddie Mac require you to have a bullet proof credit profile to even be considered for financing. When you consider that investors put up a larger down payment than most home buyers, require better credit, and typically research and with a cash-on-cash return, lenders and regulators should be more willing to finance these solid transactions. They would also help solve the housing crisis by reducing the excess foreclosure inventory sought by rehabbers and wholesalers.

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The Housing Market is About to Get Even More Oversupplied

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While both the media and stock investors believe that housing has bottomed, they are unaware of the massive supply of homes that are already in the foreclosure process that will certainly drive home prices down even further when they are sold. We have been projecting a “W” shaped recovery for some time, and we are becoming even more convinced that we are right. The shape of the second leg down is almost completely dependent on the level of government intervention that will take place.

For a number of reasons, banks have not been aggressively taking title to homes and selling them, which has resulted in very few distressed sales in comparison to the actual level of distress in the market. This delay in REO sales, along with historically low mortgage rates and an $8,000 tax credit, has helped to stabilize the housing market – temporarily.

It is very clear that price stabilization is temporary unless something is done. Here are some facts to help project what housing will be like in 2010:

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FHA Likely To Be The Next Shoe To Drop

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The FHA is a big reason that home prices haven't fallen even further. The FHA's aggressive lending programs have continued throughout the housing downturn, causing its market share of the mortgage industry to grow from 2% in 2005 to 23% today. The FHA is an even larger percentage of the new home mortgage industry – nearly 25% according to HUD.

The FHA insurance fund, however, is likely running dry. According to a report from mortgage finance experts, the FHA will not meet its minimum requirement as of its fiscal year-end, which is only 26 days from now. For months, we have been investigating this and reporting our findings to our clients.

While almost all of the experts believe that Congress would support the FHA if necessary (it's currently self-funded), we wonder if FHA officials will be under pressure to continue tightening their lending policies, which currently allow 96.5% mortgages to people with 600 FICO scores. Already, FHA has contracted its own standards to require a 10% down payment for those with credit scores below 500.

Claims against the insurance fund have climbed, with roughly 7% of all FHA-insured loans now delinquent.

Given the FHA's September 30 fiscal year-end, this financial reality will come to light about the same time that other market forces run out of steam:

  • Just as the $8,000 tax credit expires.
  • Just as more of the stalled REO currently held on banks' balance sheets will be coming to market.

The culmination of all these factors means housing could see another leg down by early next year. 

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HUD Properties, FHA & Title Seasoning for Real Estate Investors

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With HUD properties, title seasoning, FHA loans, and short sales, have had some confusion regarding the rules.  This article will clarify all of these issues for you.

HUD is the United States Department of Housing and Urban Development, a government agency whose goal is to increase homeownership and support community development .  The Federal Housing Administration (FHA), which is part of HUD, provides mortgage insurance on loans made by FHA-approved lenders throughout the United States.

HUD and FHA come into play in three different scenarios in the investor/foreclosure arena.

HUD Foreclosed Properties

When a person gets an FHA loan, it is funded through a private lender and the loan is insured or backed by the Federal Housing Administration.  When the loan is in default, FHA pays out the lender and take an assignment of the loan.  When the property is foreclosed, it is owned by HUD.  HUD then offers these properties for sale to both owner-occupants and investors.  The properties are offered on the local MLS computer database, but you have to submit an offer through a HUD-approved real estate broker.  The offer is made under a bid process, under which the HUD will either accept or reject your offer depending on what other offers are submitted.  An investor can buy, hold, or flip these properties if their offer is accepted.

FHA Loans and Title Seasoning

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Norada Real Estate Investments 30251 Golden Lantern, Suite E-261 Laguna Niguel, CA 92677

(949) 218-6668
(800) 611-3060
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