FHA Reminds and Updates Borrowers of Their Pre-Foreclosure Sale Program
December 29th, 2008
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Rising foreclosure rates have been plaguing homeowners around the nation and even FHA borrowers have not been immune. In response, HUD has recently issued a letter to all FHA mortgagees and mortgage lenders regarding the FHA Pre-Foreclosure Sale [PFS] Program.
The PFS program has been available nationally since 1994, and has since aided thousands of borrowers in trouble of foreclosure. Essentially, the PFS program allows a borrower in default to sell his or her home to satisfy their existing mortgage debt if the sale proceeds are less than the amount owed. In conventional loan standards, and as known more commonly, the PFS program is similar to the short-sale of a home. As foreclosure rates rise and home equity continues to decline, many homeowners have been left with negative equity and are forced to sell their homes for less than they owe.
Highlights of the FHA Pre-foreclosure Sale Program
– 63% Negative Equity: HUD has updated this amount to address today’s market conditions. This negative equity ratio is the ratio between the fair market value compared to the outstanding mortgage balance.
– Establishing Fair Market Value: HUD reminds homeowners that homes will be sold at or near the fair market value; a value established by an independent appraisal, prepared by an FHA approved appraiser.
– Listing Requirements: Homes cannot be listed below the appraised value determined by the FHA appraiser.
– Proof of Competitive Marketing: Before a discounted offer can be accepted, evidence must be provided to show that the selling broker provided “competitive marketing”.
– Allowed Closing Costs: HUD now allows up to one percent of the buyer’s mortgage for closing costs to be included in the seller’s HUD-1 closing statement.
– Various Changes and Updates: HUD has removed the repair limitations, increased the funds available for discharge of subordinate liens, updated forms and documents, extended appraisal monitoring, and updated income requirements.
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This entry was posted on Monday, December 29th, 2008 at 2:04 pm and is filed under . You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.
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March 6th, 2009 at 7:58 am
Thanks for the overview! My only question is about Section I. “Particpation Guidelines” (pg. 11)of the new FHA Guidelines where it talks about pre-Existing buyers. It seems that the bulk of the PFS rules apply to people wanting to enroll in the PFS program and go through the steps. For people who have a buyer before enrolling it seems like you can skip many of this steps. Thoughts?