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FHA Loan Regulations: Why HUD May Stop Your Loan Closing |
By:
Carl Pruitt |
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FHA Loan Regulations: Why HUD May Stop Your Loan Closing
Carl Pruitt
A few years ago, during the real estate boom, an unforeseen problem began occurring regularly that created quite a problem for mortgage lenders when they had to foreclose on a home. Everybody who had ever stayed up late watching TV suddenly wanted to become a real estate investor. A "house flipper".
There is such a thing as a legitimate "house flipper". This type of investor uses their own money and credit to buy up foreclosures and other distressed real estate, repair the property and then sell it at a profit. This provides an important function in the economy. Unfortunately, the investors flooding the market over the last couple of years never quite matched that description. These master television trained real estate investors would make an offer on a property even though they had no financing of their own. Then they would go in and sweep it up and mop a little. At the same time, they would find some poor uninformed dreamer who didn't really understand what was going on, agree to pay all the loan closing costs and down payment assistance, and get them preapproved for an FHA loan. They would then set up back to back closings so they could buy the property and sell it to the new buyer at the same time without ever having put up a dime of their own money. They would frequently sell the home at double the price they paid originally.
Of course these "sellers" would offer such easy terms (at a time when it was a seller's market and others weren't making such concessions) that they would have a boatload of potential prospective homeowners to choose from. Unfortunately after this had been going on for a few years, some of these new home owners began to default on their mortgages and HUD would have to pay off the lender from the FHA insurance fund. This is the source of all the HUD houses you see advertised in the weekend papers. Trouble is, when HUD was trying to sell these houses they kept having to take a big loss, endangering the very existence of the FHA program.
Thus a few years ago, HUD implemented an "anti-flipping" rule. Any house that changed owners within the previous 90 days was absolutely ineligible to qualify for FHA financing. The purpose of this rule was to guarantee that homes were being sold by legitimate investors and real value was being added by the investor.
In the usual bureaucratic tradition, HUD created another problem with their solution. Foreclosed homes being sold by lenders were not exempted from the rule. This blocked many buyers out of the market and lowering home values even more. Therefore, in 2006, HUD took action and amended the "anti-flipping" rule to allow FHA financing on those homes sold by government sponsored enterprises and federally chartered institutions. There was no change in the rule for other sellers.
Now we arrive at the present. The subprime market has crashed. Foreclosures are setting records every month. Thousands and thousands are losing their homes. But at least, we think, many potential new first time home buyers can now take advantage of this drop in home prices while FHA interest rates are low.
Working with a real estate agent and mortgage lender who are savvy about the rules, these knowledgeable eager new buyers go out into the market and the first question they ask as they look at these foreclosures is whether the owner fits into the financial institution exception. The agent representing the lender says in good faith that, of course, this home is still owned by the bank and the bank is exempt from the rule. They work out their contract, get all the signatures in the right place, get their loan application paperwork signed and in process and everything looks rosy. Just before closing the title examination results are faxed over and at first glance everything looks fine - until the loan processor notices that the owner named on the title policy doesn't exactly match. So a call is placed to the attorney's or title company's office only to find out that now a subsidiary of the foreclosing lender owns the property. The lender always uses this subsidiary to manage its real estate owned after foreclosure.
The new, and extremely serious, problem is that this subsidiary often is granted title to the property many months after the actual foreclosure and does not fit into any of the categories exempted from HUD's anti-flipping rule. They have only owned the property a month. No one in the listing agent's office knew anything about this, and all the representatives of the lender thought everything was normal. Unfortunately, our aspiring new home owner, who has already given notice to their landlord, is now required to wait 60 more days to close on and move into their new home.
Loan originators must take great care to warn real estate agents and borrowers, about this rule. Make certain that everyone goes into great detail asking questions about the chain of title on each home before setting any closing dates. This situation is fairly easy to deal with when caught early and planned for, but it will be absolutely devastating if this detail is overlooked.
http://fhatrainingsource.com/ FHA Broker Training and an expert understanding of http://fhaloanadvice.com/ FHA guidelines is necessary to avoid being left in the dust in the mortgage industry today. Mortgage originators will earn more money and truly help more borrowers by mastering FHA.
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Article Source: http://www.PopularArticles.com/article152396.html |
Article: FHA Loan Regulations: Why HUD May Stop Your Loan Closing
Author: Carl Pruitt
Total Views: 33
Word Count: 926
Category:
Home /
Finance / Loans
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