Transcript Real Estate Coalition Update and Action Plan

Coalition Corner:
Business training tools for HR staff, real estate licensees and other
service professionals in the relocation and real estate industries
HUD’s Single-family
Mortgage Insurance Guidelines
(Exemption from property flipping provisions for relocation
transactions)
Tine K. H. Dickey, CRP, GMS and Larry L. Sontag, CRP,
Fidelity Residential Solutions, Inc.
© 2008, Worldwide ERC® Coalition
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Program objectives
•
This program supplements an editorial feature in Worldwide ERC®’s
Mobility magazine
•
This segment will:
– Introduce users to some basic facts about the U.S. Department of
Housing and Urban Development’s (HUD’s) single-family FHAbacked mortgage loans
– Explore some issues connected with FHA loans and relocation
properties; specifically section 24 CFR 203.37a, as it relates to
property “flipping” restrictions
– Provide users with the specific relocation exemption language from
HUD’s anti-flip provisions to ease any potential challenges or delays
to FHA loan approvals in relocation transactions
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Introduction
•
In the 1970s and 1980s, the United States Department of Housing and
Urban Development’s (HUD’s) Federal Housing Administration (FHA)
mortgage loans were popular among borrowers with less than 20 percent
of the purchase price to put down, and/or little or blemished credit
•
At the same time, savings and loans institutions made the majority of
mortgage loans and held them in their asset portfolios
•
In the late 1980s, many savings and loans institutions failed, and the
Resolution Trust Corporation (RTC)’s government division was formed
•
Today, we are witnessing similar patterns as commercial banks and lenders
are struggling, and the pendulum is shifting back toward greater use of
FHA-backed mortgage loans
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A relocation-specific challenge
• There are provisions in HUD’s policies to prevent the practice of
“flipping” – or the process by which a speculator contracts for the
sale of a house, then either resells it prior to the closing date, or
shortly thereafter at a price significantly higher than the purchase
price (See Property Flipping Policy in 24 CFR 203.37a and
Mortgagee Letter 2006-14)
• “Flipping” was common in the housing boom period, and was often
a product of mortgage fraud
• An increasing number of borrower’s lenders are refusing to
approve loans wherein a third party relocation management
company (RMC) is the seller, based on the assumption that the
transaction is a “flip”
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FHA Guidelines
Mortgagee Letter 2006-14 summarizes the relevant restrictions
as follows:
•
•
•
•
1) Only owners of record may sell properties that will be financed with FHA
insured mortgages
2) Any resale of a property may not occur 90 or fewer days from the date of
the last sale to be eligible for FHA financing*
3) Additional documentation to validate the property’s value is needed on
resales occurring between 91-180 days after the original sale, and where
the new sales price exceeds the previous sales price by 100% or more
*NOTE: HUD has been tasked by the federal government with a key role in the current
weakened housing market, and, in order to make more FHA mortgage insurance funds
available, in June 2008 it waived the 90 day requirement for a period of one year with regard
to sales of properties acquired by mortgagees, whether sold directly by the mortgagees, by
their subsidiaries, or by vendors to whom they have transferred titles to properties for the
purpose of effectuating sales of those properties.
FHA Guidelines: Relocation Exemptions
• Following Worldwide ERC®’s discussions with HUD
during the public comment period before the
adoption of their final rules, HUD exempted from the
property flipping rules properties sold by HUD
through its Real Estate Owned (REO) activities, new
homes being sold by builders and properties being
sold by relocation companies and the property
owner’s employer as part of a relocation
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FHA Guidelines: Relocation Exemptions
• The specific language of Mortgagee Letter 2006-14’s
relocation exemption is worded as follows:
– “sales of properties purchased by employers or relocation
agencies in connection with the relocation of employees.”
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Additional Relocation Information
Ben Johnson, director, Denver Homeownership Center
(HOC), FHA, HUD, provided the following additional
information for relocation professionals:
• Regardless of how the deeds are prepared, as long
as the RMC is selling the property and has an
exclusive contract with the employer of the seller,
and not the employee, it meets the exception
guidelines
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Summary
• HUD made favorable changes to its anti-flipping provisions to
address the complexities of relocation transactions
• In transactions involving FHA financing, the time restriction on how
long the seller must be in title is often what causes approval to be
denied during the underwriting phase
• Relocation professionals can help speed and ease the process by
providing copies of Mortgagee Letter 2006-14 and the relevant
exceptions to underwriters and all other parties involved
• Copies can be found at
www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/0614ML.doc
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In Conclusion…
• In reaction to current economic, housing marking, credit and
lending challenges, Congress is continually exploring solutions
and enacting a variety of measures in an attempt to stimulate
the U.S. and global economies and stem the foreclosure tide
• An increase in FHA-backed mortgages is one result of the
current environment
• As of November, 2008, the full ramifications to the relocation
industry of additional legislative changes, such as the “HOPE
for Homeowners’ Act,” for example, are not yet known, but will
be continuously monitored and reported on by the Worldwide
ERC® Coalition
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