Open season

There used to be a saying that only widows and orphans were safe while the legislature was in session; the past 10 years have vitiated that concept, especially the upcoming Legislature who wants to punish those with the least in the state so the tax cuts given while JEB! was governor are maintained.

Senator Fasano has introduces a condo bill with some interesting changes for your perusal.

Renting/foreclosed properties

It goes without saying that we are in a depression in the multifamily commonly owned property industry in Florida. The price and value of Condo, HOA and other types of property is in the process of reverting to the mean.

Now I am not a fortune teller, as that is contrary to my religion; additionally I have been right for the wrong reasons before and vice versa. All I know is that I saw a half -billion dollars worth of condo projects in Sunny Isles when I was in South Florida for the BCS that has not even been finished yet; they will be finished and sit empty until foreclosed on, and the lender, and then we the people will take the haircut now that all financial losses have been socialized and all profits were, of course, privatized. Prices will continue to tumble for a looooong time, IMHO. Assessments need to be collected more urgently than ever in the midst of this disaster.

What are ongoing associations to do?

Well for one thing, when you amended your documents 3, 4 and 5 years ago to prohibit rentals in the first "x" years of ownership or capped rentals at "x" percent of units, I hope you included a sentence that says "This shall not apply to the association."

I just took over representation of a community in Gibsonton where their lawyer helped them amend LAST JULY and did not place that language in the amendment. Now, I understand as well as anybody why my communities wanted that language; there were so many speculators buying property hat they were in danger of becoming filled with tenants who have little interest in the long term success of the community. However by doing so, the flip side is that in this extremely dangerous market, if the association forecloses and takes title to the property, it will face a political and perhaps a legal problem if it takes title due to a foreclosure and tries to rent pending foreclosure of the first mortgage.

What's the bottom line? No matter what your documents say, the association should aggressively foreclose and take title to units that do not pay. People need to know that they will not hold on to their property for long, and that the association will do everything it can to divest them from title, and rent the unit to recoup some of the lost payments.

That's all I have to say about that....

Feds stop loophole debt strapped consumers use

here we go, homeowners underwater in debt have discovered a way out; find and buy a home in their community that is selling for half the price they paid 3 years ago, move out of their hopelessly overpriced residence and let the lender foreclose on the former abode.  This is part ofthe 'cretive destruction" of capitalism, and one of the only way a "little guy" could game the system to save himself without help from Uncle Sam....Not so fast say the regulators....

Little guys, bend over, big guys, get your hands out....billions for you!!!

September 19, 2008

MORTGAGEE LETTER 2008-25

TO: ALL APPROVED MORTGAGEES

SUBJECT: Converting Existing Homes to Rentals—Underwriting Instructions

Through this Mortgagee Letter, the 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.

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. This has been occurring as some homeowners, given the rising price of fuel, are relocating to homes nearer their employment, or are taking advantage of other home buying opportunities arising in the marketplace.

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 homebuyer 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, the underwriting analysis may not consider any rental income from the property being vacated except under circumstances described in this Mortgagee Letter. The exclusion of rental income from property being vacated is being instituted on a temporary basis while FHA further analyzes this situation to determine whether permanent measures may need to be taken. This will assure that a homeowner either has sufficient income to make both mortgage payments without any rental income or has an equity position not likely to result in defaulting on the mortgage on the property being vacated. In either case, this guidance is directed to preventing the practice known as “buy and bail” where the homebuyer purchases, for example, a more affordable dwelling with the intention to cease making payments on the previous mortgage. Although the property being vacated will not have a mortgage insured by FHA, surrounding properties may and, thus, FHA may be indirectly negatively affected should that property result in a foreclosure.

Exceptions:

Rental income on the property being vacated, reduced by the appropriate vacancy factor as determined by the jurisdictional FHA Homeownership Center (see http://www.hud.gov/offices/hsg/sfh/ref/sfh2-21u.cfm) 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 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 using form Fannie Mae/Freddie Mac 2055, and for condominium units, form Fannie Mae1075/Freddie Mac 466.

The guidance in this Mortgagee Letter applies solely to a principal residence being vacated in favor of another principal residence. This Mortgagee Letter is not applicable to existing rental properties disclosed on the loan application and confirmed by tax returns (Schedule E of form IRS 1040).

It is important to note that if the property being vacated had a mortgage insured by FHA, eligibility for a second FHA insured mortgage can only occur under the exemptions described in handbook HUD-4155.1 REV-5, paragraph 1-2.

If you have any questions regarding this Mortgagee Letter, call 1-800-CALLFHA.

Sincerely,

Brian D. Montgomery

Assistant Secretary for Housing-

Federal Housing Commissioner