HUD makes changes

Released January 15, 2010

HUD TAKES ACTION TO SPEED RESALE OF FORECLOSED PROPERTIES TO NEW OWNERS
A Measure to help bring stability to home values and accelerate sale of vacant properties

WASHINGTON - In an effort to stabilize home values and improve conditions in communities where
foreclosure activity is high, HUD Secretary Shaun Donovan today 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. Just yesterday, Secretary Donovan announced $2 billion in Neighborhood
Stabilization Program grants to local communities and nonprofit housing developers to combat
the effects of vacant and abandoned homes.
"As a result of the tightened credit market, FHA-insured mortgage financing is often the only means
of financing available to potential homebuyers," said Donovan. "FHA has an unprecedented
opportunity to fulfill its mission by helping many homebuyers find affordable housing while
contributing to neighborhood stabilization."
With certain exceptions, FHA currently prohibits insuring a mortgage on a home owned by the seller
for less than 90 days. This temporary waiver will give FHA borrowers access to a broader array of
recently foreclosed properties.
"This change in policy is temporary and will have very strict conditions and guidelines to assure that
predatory practices are not allowed," Donovan said.
In today's market, FHA research finds that acquiring, rehabilitating and the reselling these properties
to prospective homeowners often takes 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.
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, helping to stabilize real estate prices and to revitalize
neighborhoods and communities.
"FHA borrowers, because of the restrictions we are now lifting, have often been shut out from buying
affordable properties," said FHA Commissioner David H. Stevens. "This action will enable our
borrowers, especially first-time buyers, to take advantage of this opportunity."
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:
1. All transactions must be arms-length, with no identity of interest between the buyer and seller
or other parties participating in the sales transaction.
2. 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.
3. The waiver is limited to forward mortgages, and does not apply to the Home Equity
Conversion Mortgage (HECM) for purchase program.
Specific conditions and other details of this new temporary policy are in the text of the waiver,
available on HUD's website.

WELCOME 2010

Contract activity for pending home sales fell after a surge of activity in preceding months to beat the original deadline for the first-time home buyer tax credit but remains comfortably above a year ago, according to the National Association of Realtors
The Pending Home Sales Index, a forward-looking indicator based on contracts signed in November, fell to 96% from 114.3% in October, but is 15.5% higher than November 2008 when it was 83.1%.
Lawrence Yun, NAR chief economist, said a drop was expected. “It will be at least early spring before we see notable gains in sales activity as home buyers respond to the recently extended and expanded tax credit,” he said. “The fact that pending home sales are comfortably above year-ago levels shows the market has gained sufficient momentum on its own. We expect another surge in the spring as more home buyers take advantage of affordable housing conditions before the tax credit expires.”
Buyers who have a contract in place to purchase a primary residence by April 30, 2010, have until June 30, 2010, to finalize the transaction to qualify for the tax credit of up to $8,000 for first-time buyers and $6,500 for repeat buyers.
The Pending Home Sales Index in the Northeast dropped 74.4% in November but is 14.7% above a year ago. In the Midwest the index fell to 82.0% but is 9.2% higher than November 2008. Pending home sales in the South fell to an index of 97.8%, but are 14.7% higher than a year ago. In the West the index declined to 124.6% but is 21.4% above November 2008.
Yun projects an additional 900,000 first-time buyers will qualify for the extended tax credit in addition to about 2 million who have already purchased; 1.5 million repeat buyers also are expected to benefit from the credit.
“Many trade-up buyers, who have historically timed their purchase based on school-year considerations, will have to accelerate their buying plans if they need the tax credit to make a trade,” Yun said. Repeat buyers do not have to sell their existing home to qualify for the credit, but they must occupy the home they buy as their primary residence.
Yun added that mortgage interest rates cannot remain at rock-bottom levels for a sustained period and will likely inch higher in 2010. But the tax credit impact in the first half of the year and expected job growth impact in the second half will support home buying activity and absorb enough inventory to bring a rough balance between buyers and sellers. Home prices are expected to stabilize or even modestly rise as a result in 2010.
Washington, January 05, 2010, The National Association of Realtors®, “The Voice for Real Estate”