The Department of Housing and Urban Development (HUD)announced that effective February 1, 2010, they will relax FHA rules that prohibit insuring mortgages on homes that are owned by the seller for less than 90 days. This is a positive move, one that can help to expedite the rehabilitation and resale of foreclosure properties.

This news comes at a time where recent tighter lending requirements have made FHA financing the only option for some buyers. The 90-day policy has kept some
homebuyers from being able to purchase affordable homes. In addition this has also prevented the quick resale of foreclosed properties, which affects the ability of communities to stabilize and rebuild.

This temporary waiver will be in effect for a period of one year, unless extended or withdrawn by the FHA. "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."

To ensure FHA borrowers are protected from inflated prices, the policy has certain restrictions, including:

  • All transactions must be arms-length and there can be no identity of interest between the buyer and seller.
  • If the sales price of the property is 20 percent or more above the seller's acquisition cost, the lender must meet specific conditions for the waiver to apply.
  • The waiver is limited to forward mortgages, and cannot be used under the Home Equity Conversion Mortgage (HECM) purchase program.

Read more specifics on this waiver, visit the HUD.gov release.