They’ve done it again and this time for 2 years.
FHA has once again suspended it’s 90 day title seasoning rule, making it easier for rehabbers to bring dilapidated properties back from the brink. This means more opportunity for wholesalers and rehabbers, improved neighborhoods, additional property tax revenue for local communities and more homeowners in homes.
Among other notables, this is a 2 year suspension of the rule which is unusual. It goes until December of 2014. Previous suspensions were for one year only. This to me as another sign that, although they need another bail out, FHA seems to “get it” when it comes to their roll and the roll of investors, in any sort of housing recovery.
There are a couple “catches” that are not new. One is that if the seller is selling for more than 20% above their purchase price, FHA will want justification for the increase in the form of documentation that explains why the house would be worth more. This would likely come in the form of contractor receipts. In lieu of that FHA will accept a 2nd appraisal. This for some will be a more viable route.
Don’t think the documentation thing is new. It’s not. The very first Real Estate deal I ever did, was a rehab where I sold to an FHA buyer. They required the same documentation from me then too – and it was 20 years ago!
FHA insured loans to end users continue to make up the bulk of the retail activity in residential Real Estate. Other lenders remain on the side lines, I believe, in fear of Dodd-Frank. While it is law, in large part it has yet to be instituted, it’s putting fear into the minds of lenders on non government insured mortgages. In other words, lenders are scared of Dodd-Frank and with President Obama winning another term, they’re even more scared about how and when it will be instituted. This does not bode well for a housing recovery.
So, FHA, USDA and VA continue to be the driving force in retail sales. If you plan to wholesale or to rehab, you’d be wise to stay within the price range that does not exceed their maximums.
On another note, we are seeing hedge funds, private equity firms, insurance funds, pension funds and family offices buying residential Real Estate in quantity. This is a good sign for the market. When the smartest money managers are buying Real Estate, it’s proof positive that there’s a respectable ROI – in contrast to other investment opportunities.
This is not a new phenomenon. It’s a typical part of the cycles that Real Estate goes through and is once again in this cycle, an early sign that the light up ahead is in fact the end of the tunnel, as opposed to the on-coming train.
In summary, I am pleased with FHA’s decision to suspend the 90 day title seasoning rule, in particular because they did it for 2 years – for the first time. I am also pleased to see money managers bringing their assets into the equation. While a recovery of any real substance is likely a long way off, there are signs that spring is coming.
Please let me know your thoughts below. I want to know what you’re thinking!
Here’s to your success in Real Estate Investing!
Your friend and advocate,