FHA Extends Financing for Immediate Purchase of Foreclosed Homes...
In an effort to stabilize declining home values in certain neighborhoods, the Bush Administration has announced a temporary policy that will extend government-backed mortgage insurance and allow for the immediate sale of vacant foreclosed properties.
For one year, the Federal Housing Administration (FHA) will insure foreclosed properties marketed and sold by property disposition firms on behalf of lenders. Real Estate Disposition Corporation (REDC) is one such property disposition firm popular throughout Southern California, that sales homes at public auctions on behalf of lenders. The properties, which must be purchased by owner-occupants, will no longer be subject to the customary 90-day waiting period.
FHA’s new temporary policy will help stabilize neighborhoods experiencing high rates of foreclosure by reducing the inventory of unsold properties. Many foreclosed properties remain vacant for months, inviting vandalism and reducing values of surrounding homes. To address that sizeable inventory, lenders have hired companies that specialize in the marketing and disposition of foreclosed homes. It’s reasonable and appropriate that these firms have the ability to sell the properties to borrowers using FHA financing.
With certain exceptions, FHA currently prohibits insuring a mortgage on a home owned by the seller for less than 90 days. This prohibition is intended to prevent property “flipping,” a predatory practice that strips a home of its equity before being quickly resold at an inflated price to an unsuspecting buyer. FHA’s new policy will permit the immediate sale of foreclosed properties to legitimate borrowers wishing to use FHA-insured financing.