A lot of people have been talking about the New FHA Loan Seasoning Guidelines for 2010. For all of those that don’t know what property seasoning is, let me explain. If a 90 day seasoning period is required, it means that the property can’t be bought and sold within 90 days. For example, if buyer #1 purchases a property on January 1st they can’t sell it to a second buyer until it has “seasoned” for 90 days or until April 1st.
FHA (Federal Housing Administration) loans had a 90 day property seasoning duration last year and it looked like that would continue into 2010 as well. This made it hard for Short Sale investors to perform A-B-C transactions. The A-B-C transaction is normally used by investors because it makes negotiations with the lenders much easier and more efficient. Let me explain an A-B-C transaction. The “A” party would be the distressed home owner that is currently in pre-foreclosure, the “B” party would be the real estate investor and the “C” party would be the end buyer. A real estate investor goes in and works with the distressed home owner’s lender to negotiate a payoff acceptance. The investor has more influence with the lender by offering a cash purchase. Subsequent to the payoff authorization the investor will start looking for an end buyer. As you can see, the investor performed an imperative service to the distressed homeowner, the original lender and the end buyer. Let’s take a look at how the short sale investor provides a valuable service.
1. Distressed Home Owner – They are behind on their payments, usually in pre-foreclosure. They are in position to lose their home to foreclosure, destroy their credit and continue along a bad path in a difficult time in their life. The short sale investor helps them out of their foreclosure problems with much less affect to their credit and pocket book. Also, the investor will have access to additional resources and often times can help the distressed home owner find a new place to live.
2. Foreclosing Lender – The bank doesn’t want to foreclose on the property because they are in the business to lend money, not own real estate. If they go through with the foreclosure process there is a risk that the property will not be purchased at auction. That means it will go back to the bank and become an REO property. This means additional holding costs, selling costs, repair costs, lending restrictions due to the additional liability and not to mention added stress for the lender. Once they finally get rid of the property, they are getting rid of it for a discount. By accepting a discount with the investor during the short sale process they save a lot of additional costs and headache.
3. End Buyer – The end buyer will normally have a chance to buy the property at a price cut value as well. Investors are looking to sell the properties quickly and to do so, they offer marked down values. A new home owner will not only get a great property but they will also get instant equity in their new home.
Last year, Short Sale Investors had to find end buyers that could qualify outside of the FHA loan program because of enforcement of a 90 day seasoning period. Starting February 1, 2010 the 90 day seasoning period for FHA Loans will be lifted until February of 2011. To read more about the change check out the following HUD article.
http://embracevision.com/HUD_New_FHA_Guidlines_2010
This was great news for the investors and end buyers alike! Here are a few more articles about FHA Loans for you to check out…
http://embracevision.com/FHA_Loan_Pros&Cons
http://embracevision.com/FHA_Website
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