On Friday, the Bush administration announced that FHA was reducing title seasoning requirements for some properties in order to reduce the impact of foreclosures across the country.
The previous policy, enacted in an effort to prevent property flipping, prohibited FHA in most circumstances from insuring a mortgage on a home owned by a seller for less than 90 days. Exempt from the 90-day seasoning requirement were properties sold by state- and federally-chartered financial institutions and government-sponsored entities such as Freddie Mac and Fannie Mae.
As a result, many foreclosed-upon homes would sit vacant for 90 days before they could be purchased with an FHA-insured loan.
With an ever-increasing number of foreclosures, FHA has determined that a temporary relaxation of the seasoning requirement may help with the current mortgage crisis.
FHA's new policy, effective for one year, allows the agency to insure sales of foreclosed-upon properties to legitimate owner-occupants by the foreclosing lenders or REO property disposition firms hired by the foreclosing lenders without having to wait out the 90-day seasoning period.
For real estate investors, particularly hard-money lenders and those who typically sell with wraparound financing, this easing of the seasoning requirement is fantastic news. By allowing immediate sales to buyers with FHA financing, the new rule potentially will reduce an investor's holding costs, as well as the impact of property value deterioration of the foreclosed home itself.
For most real estate investors, FHA's new seasoning policy will not have much of an effect on their day-to-day business; but for hard-money lenders saddled with large REO inventories, the ability to market and sell those properties without a seasoning requirement will be greatly welcomed.
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