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FHA Tightens Underwriting Guidelines for Folks Converting Existing Homes to Rentals
I blogged about changes to the Fannie Mae / Freddie Mac underwriting guidelines concerning keeping a home as a rental property and purchasing a new property a couple months ago. These changes have now hit FHA lending guidelines as well. Last week HUD released new temporary underwriting guidelines surrounding this practice.Unfortunately, there are folks out there who have been producing phony rental agreements for the home they are vacating, closing escrow on their new replacement home, and then allowing their "rental" home fall into foreclosure. This is known as "Buy and Bail."Directly from the language in HUD's Mortgagee Letter 2008-25:"Recently, FHA and others in the mortgage industry have observed an increasing number of homeowners who have chosen to vacate their existing principal residence and purchase a new residence. ... Due to FHA's concern that some homebuyers in these transactions may attempt to provide misleading information regarding the rental income of the property being vacated to qualify for the new mortgage, FHA is instituting underwriting guidance designed to assure that the homebuyers can make payments on the full debt service of both mortgages. Consequently, beginning with case number assignments on or after the date of this Mortgagee Letter and until further notice, ... more
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