U.S. Department of Housing and Urban Development (HUD) Secretary Shaun Donovan has announced a temporary policy that will expand access to Federal Housing Administration (FHA) mortgage insurance and allow for the quick resale of foreclosed properties.
With certain exceptions, the FHA currently prohibits insuring a mortgage on a home owned by the seller for less than 90 days. This temporary waiver, which will be in effect for one year starting Feb. 1, will give FHA borrowers access to a broader array of recently foreclosed properties.
The policy change will permit buyers to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. This will allow homes to resell as quickly as possible, HUD says.
‘As a result of the tightened credit market, FHA-insured mortgage financing is often the only means of financing available to potential home buyers,’ Donovan says, adding that the policy change will be complemented by strict guidelines and conditions that prevent predatory practices.
According to FHA research, the process of acquiring, rehabilitating and reselling foreclosed properties can take less than 90 days. Prohibiting the use of FHA mortgage insurance for a subsequent resale within 90 days of acquisition adversely impacts the willingness of sellers to allow contracts from potential FHA buyers, because they must consider holding costs and the risk of vandalism associated with allowing a property to sit vacant over a 90-day period of time.
Though the temporary waiver has a one-year window, FHA Commissioner David Stevens will have the authority to extend or withdraw the waiver, HUD says.
To protect FHA borrowers against flipping, the waiver is limited to those sales meeting the following general conditions:
- All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.
- In cases in which 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 specific conditions.
- The waiver is limited to forward mortgages and does not apply to the Home Equity Conversion Mortgage for purchase program.
‘FHA borrowers, because of the restrictions we are now lifting, have often been shut out from buying affordable properties,’ says Stevens. ‘This action will enable our borrowers, especially first-time buyers, to take advantage of this opportunity.’
Specific conditions and other details of this new temporary policy are in the text of the waiver, available on HUD's Web site.