For investors who wanted to buy foreclosed condos and houses and are planning to use FHA loans to finance the purchase, the decision last year by Federal Housing Administration (FHA) Commissioner David H. Stevens was a relief. The commissioner announced in January 2010 that the rule prohibiting the use of FHA mortgage loans in purchasing existing dwellings sold by someone who has owned the home for less than three months will be suspended for a year.
The announcement has vast significance in the Los Angeles metro area, where huge supplies of foreclosed properties can be found. The rule was reportedly enacted to discourage home flipping or buying foreclosure homes for sale in Los Angeles and selling them quickly. According to earlier reports, some home flippers have taken advantage of the procedure by using straw buyers and fake appraisers and selling properties at inflated rates.
However, the rule created problems as even legitimate sellers of California foreclosed homes were affected by the law. It prevented them from acquiring foreclosed properties that would have helped lower the huge supplies of distressed homes in the state and thereby push the recovery of the housing market faster.
In light of arguments from analysts and realtors that the rule is creating more negative effects than positive, the FHA decided to suspend the policy for a full year. Now, there have been speculations that the suspension will continue for another year. Those who plan to buy foreclosed condos and residences using FHA loans have until the end of January 2011 as that would be the expiration date for the current suspension.
Legitimate investors and sellers of foreclosed home listings are hoping that the suspension will be extended as they admitted that a lot of buyers favor rehabilitated properties from legitimate house flippers. According to them, buyers appreciate the improvements done by flippers to the foreclosed properties they are selling.
In addition, further suspension of the rule will allow investors who buy foreclosed condos and rehabbed houses to help in lowering the oversupply of unsold existing properties all around California and in the rest of the U.S. Analysts added that it will be better for the housing market as a whole if the rule is put on hold.
John Cutts has been educated in the finer points of the foreclosure market over 5 years.
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