The policy change opens up a potent resource -- the red-hot FHA fixed-rate mortgage program -- to investors and property disposition companies looking to move houses quickly off their books at a profit.
The idea, according to FHA Commissioner Brian Montgomery, is to help get rid of the "glut of foreclosed and abandoned homes" now burdening large numbers of neighborhoods around the country.
FHA's 90-day policy slowed the process down. But at least until June of 2009 -- when the temporary waiver expires -- it should no longer be an impediment.
HUD had adopted the 90-day rule at the height of the housing boom, after it found that scam artists were buying up central city and suburban foreclosures at rock bottom prices, then flipping them at inflated resale prices within days to home buyers using low-downpayment FHA-backed loans.
The buyers frequently were unsophisticated, unaware of the artificial increase in the price, and couldn't afford the high mortgage amounts. They defaulted in large numbers, ended up in foreclosure, and lenders hit the FHA insurance fund for claims.
Under the revised policy, FHA will require purchasers to be financially capable of handling the mortgage, and underwriters will look hard at appraisals. But the agency no longer will rule out insuring a mortgage simply because title to the property had changed hands within the previous three months.
Investors and property disposition firms who work with lenders' "REO" departments can play key roles in returning abandoned and damaged houses back to productive use.
But without dependable financial takeouts -- affordable mortgages for buyers whose credit histories may be imperfect -- their jobs are much tougher.
FHA's return to the foreclosure resale market segment through its waiver of the 90-day anti-flipping rule should give those investors an important resource to start using - now.
Remember: FHA says the policy change is temporary. Even with a new administration, that June deadline just might be for real.
Published: June 27, 2008
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