Loan Modification

HUD Secretary argues against wholesale mortgage foreclosure moratorium

By Karen Lawson

In his article for the Huffington Post, HUD Secretary Shaun Donovan addresses demands for a national moratorium on mortgage foreclosures; he stresses concerns for falling home sales caused by such a moratorium while indicating that sales of foreclosed homes currently account for about 25 percent of US home sales. A moratorium on all foreclosures could cause home sales to plummet, as mortgage lenders cannot sell foreclosed homes until they acquire title through a sheriff’s sale or public foreclosure auction.

FHA guidelines: FHA monitoring mortgage lenders

Mr. Donovan notes that FHA will be monitoring its approved lenders to ensure that they are following proper foreclosure procedures. Pointing out that neighborhoods are being revitalized by the sale of foreclosed homes, Secretary Donovan asserts that stopping the foreclosure of all mortgages would adversely impact housing markets and home values, particularly those in neighborhoods with many foreclosed homes.

FHA home loans include the FHA 203 (k) program, which provides qualified borrowers with a mortgage loan based on the estimated repaired value of a home. This streamlines the process of buying and repairing a damaged home, as  buyers don’t have to qualify for a separate home renovation loan. Would-be buyers of foreclosed homes could be affected as foreclosure moratoriums cause vacant and abandoned homes to remain unavailable for purchase. Mortgage lenders are powerless to sell homes until the foreclosure process has been completed according to state law. Foreclosure moratoriums render properties ineligible for sale until the moratorium is lifted and foreclosure can be completed.

FHA likely watchdog as foreclosure mess sorted out

While several mortgage lenders have voluntarily ceased foreclosure proceedings pending investigation of alleged legal issues in their foreclosure processes, it’s likely that other lenders may follow suit. FHA has recently publicized its intention to step up its review of approved lenders and their mortgage servicing procedures. This can benefit home buyers and homeowners in several ways:

Mortgage fraud: Closer FHA scrutiny will help home buyers avoid unintentional participation in mortgage fraud schemes. FHA guidelines require borrowers to provide detailed documentation of employment and income; failure to do so can lead to federal prosecution for mortgage fraud.
Foreclosure avoidance programs: FHA expects its approved lenders to offer foreclosure avoidance options to qualified borrowers. Complaints about lack of assistance are influencing FHA plans to strengthen enforcement of its requirements.
Reduce inappropriate foreclosures:Enforcing FHA requirements for mortgage servicing will help mortgage lenders and homeowners avoid unjustified or incorrect foreclosure proceedings.
If you have questions about buying a home, FHA loans, or avoiding foreclosure, please contact potential mortgage lenders, your current mortgage lender, or a HUD approved housing counselor for help.

Full post as published by FHA Mortgage Guide on October 18, 2010 (boomark / email).