FHA 90-DAY HOLDING PERIOD WAIVED ...

Effective February 1, 2010 the Department of Housing and Urban Development (“HUD”) Act under 24 CFR x203.37a(b)(2) is waived for a period of one-year from this date (February 1, 2010).  HUD’s change in policy will now allow an owner to resell a property without any ‘holding’ period subsequent to the original purchase (which under 24 CFR x203.37a(b)(2) was 90 days), subject to certain conditions.  Prior to this modification, the Act required that a mortgage for a property was not eligible for FHA insurance, if the contract of sale for the purchase of the property was executed within 90-days of the prior acquisition by the seller and the seller does not come under any of the specific exemptions that apply to the rule. 

The intent of this temporary waiver for eligible properties is to help address the growing foreclosure crisis by encouraging more investor sales or ‘flips’.  Specifically mentioned in the HUD determinations is that waiving the 90-day restriction for buyers will “help facilitate the return of repaired and habitable properties to the market in a timely fashion, additional exemptions to this resale restriction period must be granted for the purchase of properties by investors.  This policy change will help to sell properties that may otherwise remain vacant for up to 90 days, while offering affordable housing options to buyers wishing to use FHA-insured financing.”

The waiver of the Act is subject to three primary conditions containing several subparts.  Assuming that these conditions are satisfied, an investor may purchase a property and resell it to a new buyer (assuming no collusion and ‘arms-length’ sale) immediately without any holding period.  Investors, as well as lenders, need to familiarize themselves with the amended Act and its conditions because they require several steps be followed if certain market conditions exist in the subsequent sale.  See the HUD Policy Act for more details.

This policy change has been discussed and encouraged by several real estate industry associations and boards due to its restrictive effect on investment transactions (aka ‘flips’).  In effect this policy discouraged investors purchasing SFR for ‘flips’ because the new buyer would not be able to secure federally insured loans for the property until after the 90-day holding period expired.  Simply put … this policy seemed to be a knee jerk reaction to a certain market segment.  Penalizing investors for purchasing distressed properties, rehabbing the homes, and selling them to new buyers makes little sense; unless the intent was to restrict this segment of the market.  Was there abuse in the market … sure … but to severely curtail most ‘flip’ opportunities because of the acts of a few seems to be counter-intuitive in this market.  Hopefully when the anniversary date of the waiver approaches policymakers will recognize the flaw in the initial Act, and elect to permanently extend the waiver.

I appreciate any opportunity to serve as your realtor of choice, if you or someone you know is thinking about buying or selling real estate.  Let me know how I can be of service to you by either contacting me via email at jim@peys.net or visit us at www.coastalcommunityhomes.com.  Thank you!!  Jim Peys

The Real Story For Fall Sellers ...

Several reports and blogs today suggest that the summer honeymoon for prices will lose momentum as we roll further into fall.  Scott Sambucci at Altos Research states that many pundits believe that the U.S. housing market is likely to reach bottom by early 2010; however, in the meantime he suggests that prices will continue to slide an additional ten percent (10%).  In support of his opinion he points to the summer season concluding, rising national unemployment rate, higher level of foreclosure-driven inventory (see L.A. Times front page article regarding FHA loan reserves and pending foreclosure risks).

What facts do we know right now about the housing market locally?  Well the 90-day rolling average of median list prices hits an 'inflection' point in early August, then it moves consistently down each week in the fall.  As of today, a ten city composite shows asking prices down about 1.25% from early August numbers.  In addition, there is a noticeable delta between the overall market median price and new sellers entering the market this Fall, especially compared to the Spring 2009.  Experts point to several factors for the current market pessimism:

1. Lagging effects of the government's HAMP program;
2. Effects of the foreclosure moratorium programs;
3. The alleged end of the first-time homebuyer tax credit of $8,000;
4. National unemployment rates;
5. FHA concerns and proposed legislative initiatives that may limit these loan programs; and
6. Interest rate pressures in the spring of 2010

What we will see in published reports (newspapers, etc.) over the short term is that the sales volume, prices and inventory will reflect a slight market rebound.  However, note that these published statistics  report on 90 day old data (i.e., S&P/Case-Shiller reports).  So later in the fall we will begin seeing what is happening in the market in the early part of October.