Blog of the Mortgage

We've known this letter was coming for some time now and today HUD delivered ML 08-25 on Homebuyers moving out of their existing homes and into new ones while renting out the existing property.
 
Many lenders had already adapted FNMA's guidelines as policy to be prepared for this and other's (yours truly included) had been allowing for borrower's to purchase new homes while renting out their existing and likely underwater properties.
 
After today that ALL changes. This letter (Download Here) gives direction issued for case file #'s issued from Today forward.  

Some Details from the letter follow (HUD language, not mine -notice the sharp critcism):
 
Federal Housing Administration (FHA) takes steps to immediately respond to an unscrupulous practice arising in the housing mortgage market that poses a risk to FHA, FHA-approved lenders, and consequently to FHA's ability to help new homeowners.
Consequently, beginning with case number assignments on or after the date of this Mortgagee Letter and until further notice, the underwriting analysis may not consider any rental income from the property being vacated except under circumstances described.
this guidance is directed to preventing the practice known as "buy and bail" where the home buyer purchases, for example, a more affordable dwelling with the intention to cease making payments on the previous mortgage.

    Exceptions:

    • Rental income on the property being vacated, reduced by the appropriate vacancy factor as determined by the jurisdictional FHA Homeownership Center (90% in California) may be considered in the underwriting analysis under the following circumstances:
    • Relocations: The homebuyer is relocating with a new employer, or being transferred by the current employer to an area not within reasonable and locally recognized commuting distance.  A properly executed lease agreement (i.e., a lease signed by the homebuyer and the lessee) of at least one year's duration after the loan is closed is required.  FHA recommends that underwriters also obtain evidence of the security deposit (Copy of a cancelled Check) and/or evidence the first month's rent was paid to the homeowner. 
    • Sufficient Equity in Vacated Property:  The homebuyer has a loan-to-value ratio of 75 percent or less, as determined by either a current (no more than six months old) residential appraisal or by comparing the unpaid principal balance to the original sales price of the property.  The appraisal, in addition to using forms Fannie Mae1004/Freddie Mac 70, may be an exterior-only appraisal (Drive-by appraisal)using form Fannie Mae/Freddie Mac 2055, and for condominium units, form Fannie Mae1075/Freddie Mac 466. 

Another day, another guideline change. I'm beginning to become immune to these aren't you?

Posted by Raoul Badde on September 26th, 2008 8:30 AMPost a Comment (0)
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