The Market is definitely changing as you can see in this news article by Jim Freeman.
Feeding frenzies. Multiple offers. Disappointed buyers, rising prices. Offer acceptances soaring over the ask price. It is no secret that housing inventories in Kitsap County are at record lows. My studies indicate that supply of all homes valued under $500,000 have less than three months’ supply. Most housing analysts agree that in order for a marketplace to be balanced between buyers and sellers that you need four to six months’ supply. That’s why HUD homes are more important to selling brokers than ever.
What is a HUD home? Simply put a HUD home is one acquired by the U.S. Department of Housing and Urban Development to remarket following a default and foreclosure of a home owned by a borrower with a Federal Housing Administration (FHA) insured loan. HUD is the federal department that oversees the FHA and other functions. Once the FHA has paid out the insurance benefit to the investor that owns the loan secured by a home with a defaulted borrower, title is transferred to HUD for remarketing and asset recovery. Lenders who make FHA-insured loans are fully insured for their losses.
The current limit in Kitsap County for an FHA-insured loan on a single-family residence is $307,050. With the Kitsap County median home price standing somewhere around $240,000 in February, FHA-insured loans are a resource for households with incomes ranging from low to the upper middle. The inventory of HUD homes can represent a similar profile. HUD inventories can also occasionally include two- to four-unit multi-family properties.
HUD employees act as contract managers to oversee operations carried out by private contractors managing and marketing HUD-owned properties. The contractors include a mortgage compliance manager to oversee the foreclosure process and obtain marketable title. Next is what is called a field services manager that oversees re-keying, cleanup, health and safety repairs. Last is the asset manager that is in charge of marketing and selling the properties. Local listing brokers (LLBs) work as subcontractors for the asset manager.
Prior to the financial crisis of 2007 the market share of FHA-insured loans was about 3 percent of all originations. In combination with other federal government intervention, the FHA was ordered to increase its activity up to what became a 30 percent market share circa 2008 with loan limits higher than they are today. The minimum down payment for an FHA loan is 3.5 percent. So from 2008 through circa 2013, FHA loans made with a 3.5 percent down payment might certainly have lost more value than the down payment would buffer against. This represents a large plurality of potentially distressed homes in the future and inventory worth paying attention to.
The FHA is a government agency operating a mortgage insurance program to insure lenders making loans to qualified borrowers for the purchase or refinance of qualified residences. Program funding is totally dependent on revenues derived from mortgage insurance premiums paid by the borrowers that use the system with an express guarantee of the federal government.
The FHA was created in 1934 in a package of new federal programs to encourage home ownership and stimulate the economy. Since its creation the FHA has not had to rely on subsidies from the federal budget although it came close in 2014-15. By law the FHA is required to maintain a level of cash reserves equal to 2 percent of its aggregate portfolio principal. In 2014 by some calculations those reserves had fallen to 1.7 percent.
With some tightening of loan underwriting standards and an increase in the FHA mortgage insurance premium (MIP), the FHA was able to bring the reserves back to regulatory levels and subsequntly lower the MIP, which currently stands at 0.85 percent. This is very competitive with current private mortgage insurance premiums.
Here is some good news. They are priced right. HUD homes are valued to sell in their as-is condition with no representations or warranties. For the first 15 days or so of the listing, only owner-occupants can make an offer. There are FHA loans available to deal with minimum repairs and more. These include FHA 203(b), 203(b) with repair escrow and 203(k) to provide a method for owner-occupants to acquire homes that need substantial repair and thereby build sweat equity. All offers are sealed-bid and if your client makes the best offer during the initial period deadline, they will get the home. No “highest and best” hassling after the fact.
Sure, the documents are different and so are some of the policies and procedures, but once you know the system it is maneuverable. Plenty of help is provided and often clock-hour classes are available for free or low cost. If you would like to have a 20- to 30-minute HUD update presentation for your office or arrange for clock-hour classes, please contact Jessica Campbell at 360-620-9522 or [email protected]
All HUD homes in the country may be viewed at HUDHomeStore.com. Help resources are available through the asset manager at BLBResources.com.