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FHA suspending 90-day rule for mortgages

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POSTED January 22, 2010 2:12 a.m.
Finally there is some relief coming for those first-time buyers battling investors for foreclosures.

Stating Feb. 1, the Federal Housing Authority is dropping its rule that blocked homes with government backed mortgages in foreclosure to be sold and then resold in 90 days. The rule is being suspended for a year and will have safeguards built into prevent fraud. Some have been known to purchase a distressed property, make minor repairs and then use straw buyers – people who never planned to pay off their FHA loan to buy the home. The original buyer of the foreclosed home would walk away with the money leaving the FHA holding the bag.

What has been happening were investors – who often pick up some of the most distressed and undervalued foreclosures at auction or rock bottom prices – are typically all cash buyers. Once they made repairs – usually in less than a month’s time – they are ready to sell. Those investors typically don’t want to wait the full 90 days which meant first-time buyers who almost always have to use FHA-backed loans were losing out. The homes then get sold to other investors who intend to hold on to them as rental property for the long haul.

The flipping of the homes is possible because prices of many are even below today’s market. Banks often can ill afford to wait to unload foreclosures due to the backlog and their need for cash flow although such a move arguably could bring prices up that they receive for distressed properties.

The FHA goal is to stabilize neighborhoods and to avoid them from going from foreclosure riddled to rental riddled.
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