FHA Clamps Down on Multi-Unit Loans

It appears that bad underwriting isn't just a problem for FHA and single family houses. The mortgage bankers association today relates a story about how HUD is changing its guidelines to tighten up on loans for multi-unit properties.

Here is what the article has to say about whats coming down the line:

The proposed changes include a debt service coverage increase for FHA's 221 (d)(4) product from 1.11 to 1.20, increased escrows and reserves to four months principal, interest and mortgage insurance premium and disclosure requirements on lender premiums.

What does this mean to the market? Well, for multi-unit properties, remember that FHA is 20% of the marketplace right now. Making it more prohibitive to obtain these loans will just put further pressure on an already stressed market for multi-unit property. More owners will seek alternatives to sell which I believe will include seller financing.

HUD indicated that high vacancy rates were hurting loan performance and thus the reason for the change. It seems that too many people are moving into their parent's basements. This shows how unemployment drives demand destruction. Keep in mind also that the units that go vacant first are the lowest on the value curve: They are either way too expensive to afford or way too ghastly to inhabit.

Look for more seller financing opportunity ahead.