FHA Lifts Waiting Period, Extends Insurance Coverage

The U.S. Federal Housing Administration is temporarily lifting its required 90-day waiting period to help stabilize neighborhoods flooded with foreclosed properties, the Bush administration announced Friday.


This latest effort will lift the waiting period normally required for homes purchased by owner-occupants that are financed through this federal mortgage guarantee program.

In addition, for a period of one year, the FHA will insure foreclosed properties marketed and sold by property disposition firms on behalf of lenders.

"A glut of foreclosed and abandoned homes harms neighborhoods, frustrates home buyers and delays a community's recovery," said Brian D. Montgomery, assistant secretary of housing-Federal Housing Commission.

"The action we take today will allow home buyers to purchase these homes in much greater numbers and ease the excess supply of unsold homes in neighborhoods across the country," he said.

The FHA typically prohibits insuring a mortgage on a home owned by the seller for less than 90 days in an effort 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.

Many foreclosed homes remain vacant for months, inviting vandalism and reducing values of surrounding homes.

To address the sizable inventory, lenders hire companies that specialize in marketing these properties.

The FHA's new policy will permit the immediate sale of foreclosed properties by these firms to legitimate borrowers wishing to use FHA-insured financing.

The FHA, a federal mortgage guarantee program established in the wake of the Great Depression, is designed to help put owners in homes with less costs and less risk by providing a self-funded government guarantee.

The latest policy is intended to help stabilize neighborhoods experiencing high rates of foreclosures by reducing the inventory of unsold property.

"It's reasonable and appropriate that these firms have the ability to sell properties to borrowers using FHA financing," the Department of Housing and Urban Development statement said.

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  • Diana Olick

    Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.

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