In an effort to stabilize home values and improve conditions in communities where foreclosure activity is high, HUD Secretary Shaun Donovan announced a temporary policy that will expand access to FHA mortgage insurance and allow for the quick resale of foreclosed properties. The announcement is part of the Obama administration commitment to addressing foreclosure.
In the past, a home had to be owned by the “owner of record” for 91 days or more before it could be purchased using FHA Insurance. To simplify, an investor could not purchase a home from an auction or a bank (such as a foreclosure) and immediately sell it to a buyer using FHA backed financing. While some other rules applied, this basic concept kept homes unoccupied for longer periods of time since FHA has become a large player in the single family home purchase market again.
All in all, this is very good news. Not only for buyers, but for investors who are buying the homes with hopes to resell them soon. There are, however, a few conditions that the investors need to be aware of (.pdf).
The waiver will take effect on February 1, 2010 and is effective for one year, unless otherwise extended or withdrawn by the FHA Commissioner. To protect FHA borrowers against predatory practices of “flipping” where properties are quickly resold at inflated prices to unsuspecting borrowers, this 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 percent 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 (HECM) for purchase program.
For more information, you can read the entire press release from HUD here.
Scott
Your Indiana mortgage expert specializing in FHA, VA, and USDA Rural Development loans.