FHA implements new rules to help foreclosures sell faster

FHA has made recent changes to their rules to help stabilize the home values and improve community distress in places where foreclosure activity is high.  A temporary change of policy has been announced which will allow increased and quicker access to FHA mortgage insurance when purchasing some foreclosed properties.

Through this announcement and the $2 billion stabilization grants announced for non-profit developers and local communities announced to stem the negative effects of abandoned and vacant homes in some communities, the current administration has shown a commitment to addressing these issues.

These changes further open up the credit market to potential home buyers who often run into roadblocks obtaining conventional financing, most home buyers in today’s tightened market place frequently find FHA is their only financing option.

In the past FHA has prohibited using FHA mortgages to purchase homes owned by sellers for less than 90 days which kept buyers away from recently foreclosed homes.  This waiver will temporarily allow buyers access to a broader range of foreclosure properties while still maintaining stringent control to prevent any predatory practices.

Less time is required today to purchase, restore and sell foreclosure properties to homeowners looking to move in.  It typically takes much less than 90 days and home buyers using FHA financing found themselves excluded from trying to purchase these restored homes.  Sellers were often unwilling to accept contract offers from buyers using FHA financing because they would incur additional holding costs while waiting for the 90 days to pass.

This temporary change will assist in stabilizing the real estate market and revive communities by allowing buyers to purchase bank owned properties, HUD properties and properties being resold utilizing FHA financing without a 90 day waiting period.  This will result in quicker sales, more price stability and less neighborhood vacancies.

With the restrictions lifting home buyers will have more opportunities to buy affordable housing which they were previously unavailable giving buyers more opportunities in the market.

The one year waiver takes effect February 1, 2010 and is designed with protections in place against predatory lending.  In that transactions must meet the following general guidelines.

• Transactions must be at arms-length.  This means the parties to the transaction cannot share an identity of interest.
• Additional lender conditions will apply if the sales price of the property exceeds a 20% increase of the acquisition cost.
• The waiver does not apply to Home Equity Conversion Mortgage.

HUD provides the specific text for the temporary policy on its website.