In a pretty surprising announcement the US Department of Housing & Urban Development announced that it will permit FHA-insured loans to be used to purchase foreclosure/REO properties. This appears to go hand-in-hand with HUD Secretary Shaun Donovan's statement of December 2, 2009, in which he stated that the FHA will not become the new subprime market. I guess time will tell. This morning HousingWire's Jon Prior released the following article detailing the new FHA announcement.
Federal Government Will Allow Purchases of Foreclosures With FHA Loans
Published on: Tuesday, January 19, 2010
Written by: Jon Prior
The US Department of Housing and Urban Development will allow homebuyers to use FHA-insured financing to purchase foreclosed properties starting February 1, 2010. The one year waiver program will only apply to forward mortgages and includes conditions to protect borrowers from predatory "flipping" practices. See the following article from HousingWire for more on this.
Shaun Donovan, secretary of the US Department of Housing and Urban Development (HUD), will temporarily permit buyers to use FHA-insured financing to purchase real-estate owned (REO) property to stave off vacancies. The waiver will take effect on February 1, 2010 and remain available for one year. It will be subject to extension or withdrawal by the Federal Housing Administration (FHA) commissioner David Stevens. To protect FHA borrowers from predatory “flipping” practices, where properties are quickly resold at heightened prices to borrowers, HUD laid down some general conditions. The transactions must be at arms-length, with no entity of interest between the buyer and seller. If the sales price of the property is 20% or more above the seller’s acquisition cost, the waiver will only apply if the lender meets certain requirements. Also, the waiver only applies to forward mortgages, not to the Home Equity Conversion Mortgage (HECM) for purchase program. “This change in policy is temporary and will have very strict conditions and guidelines to assure that predatory practices are not allowed,” Donovan said. With some exceptions, FHA currently does not insure a mortgage if the seller owned the home for less than 90 days, but this temporary waiver will give access to FHA borrowers into a “broader array” of recently foreclosed properties. “This change in policy is temporary and will have very strict conditions and guidelines to assure that predatory practices are not allowed,” Donovan said. Other government initiatives are attempting to boost the REO sale process in order to clear out vacancies. The REO Insider reported that the governor of Colorado will try to push new legislation through the 2010 state session, which will provide a minimum of four months for lenders to sell an abandoned property. This article has been republished from HousingWire. You can also view this article at HousingWire, a mortgage and real estate news site.