I learned something new: Section 502

A couple of folks have posted scenarios that were unfamiliar to me involving small first mortgage loans, and larger, USDA 2nds.

I learned that these are probably Section 502 RD LLP's (rural development leveraged loan program ) which enables a qualified, low income Buyer to finance the purchase of a more expensive home. They obtain a low LTV conventional first mortgage loan, which is supplemented by a very, very low interest 2nd mortgage loan (USDA) up to 100% of the purchase price. The objective is a 'blended' rate of interest between the 1st and 2nd, the average is considered affordable.

In the event of a default, the USDA has the option of purchasing the first mortgage from the first mortgagee, then restructuring the entire obligation... with interest rates sometimes as low as a 1% payable over 30 years..

This Section 502, like many government insured and subsidized loan programs was designed to keep homeowners in their homes. Worst case is that the USDA forecloses and takes these homes back into their 'program' then recycles the home and financing to a new, qualified potential Homeowner.

Because the USDA has a proprietary interest in the success of the Section 502 LLP's, I seriously doubt if any of these suitable candidates for short sale, but I'd be interested to learn if anyone has success.

Comments(1)

  • TheShortSalePro12th April, 2003

    My point? I've discussed the need for the PREQUALIFICATION of short
    sale candidates. Many people have asked, "what, how, when, etc...."

    This is an example of a red flag. If it's a Section 502, you should know, in advance, how the loan program works, and what specific loss mitigation criteria the USDA has imposed, and practices.

    Different loan types and their position will indicate what acquisition strategies to
    employ.

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