More and More Homes for Sale are HUD Homes – FHA Foreclosures – The Next Wave Starts Now

HUD logoHUD Homes…what comes to mind when you think about HUD homes?  I suspect HUD has been preparing for this for some time as it was about a year and a half ago that they updated and changed their web site to a store – it’s now called HUD Home Store.  Perhaps it’s not unlike a large scale retailer where they need a web store.  As far as I know, the back end is not run by Amazon however.  You know this is going to be huge if HUD starts showing up with portable kiosks or small retail outlets in every mall in the country :)

If you’ve been in the business a while or if you are an investor, HUD homes often are some of the worst, least desirable properties in the marketplace.  But they are often dirt cheap.  Well get ready for the next wave of foreclosures as these former FHA homes come to market as HUD homes.  Now it’s possible that the federal government will come up with some program where these don’t all hit the market…perhaps they sell them off in bulk to investors who will agree to turn these in to rentals.  The truth is, many of these HUD homes will be turned in to rentals anyway.

I do not have any insider information on this.  All I am doing is reading the tea leaves and when the vast majority of purchase mortgages (and an increasing number of refinancings) have been FHA mortgages, and with near 10% of FHA loans in serious delinquency…well the number of potential HUD homes starts to get rather large.

HUD Home Mold Warning Sign
HUD Home Mold Warning Sign

At this point I am unable to find the statistics that show how many mortgages were underwritten last year.  However, I found this very cool FHA infographic that is a must see!  The source on this is HUD:

  • 1,271,211 total number of FHA mortgages underwritten in 2011
  • 61.2% were purchases
  • 33.1% were refinancing
  • 75% were first time home buyers
    • 61% non-minority home buyers
    • 32% were minority home buyers
  • Average credit score: 698

In our market in the Twin Cities, if a home in being purchased that is under $300,000 to $325,000 it’s my experience that 2 out of 3 times that is going to be an FHA loan.  FHA only requires a 3.5% down payment so there’s not much of an equity cushion if indeed prices continue to slip.  The fact is that there have been a few million FHA mortgages written in the past four years while at the same time, home prices have continued to slide in nearly every market in America.  They are all underwater.

Will this be as big as the tsunami that started to hit in 2008…no, but it will be noticeable and if you’re an investor, the timing of these wave is going to be fantastic!  Recall even BusinessWeek could see this coming when they published the article “FHA-Backed Laons: The New Subprime” and that was back in 2008!

I will soon publish more information about how to buy a HUD home and what you need to do and what you need to be aware of as both an owner occupant and an investor.  If you would like to try to buy a HUD home, I am registered and can help you with that process…and it is a process.

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