HUD Raises Discount for Faster REO Sale (Inside Mortgage Finance)

Inside Mortgage Finance
(1/25/2012 8:00 AM, Inside Mortgage Finance)

The Department of Housing and Urban Development has sweetened the pot to encourage more investors to participate in an FHA program for disposing of real estate-owned properties to ease HUD's housing inventory.

HUD announced it is raising the discount for REO properties under its First Look Sales Method to 15 percent from 10 percent. Properties include those that do not meet the standards for FHA insurance.

The special program was launched in 2010 to give preference to eligible purchasers under the Neighborhood Stabilization Program (NSP) to acquire REO properties at 10 percent below their appraised value, less listing costs and commissions.

The temporary REO sale is aimed at advancing the goals of the NSP and HUD to redevelop abandoned and foreclosed homes in communities that have been hardest hit by foreclosures. First Look Sales properties are located within NSP-designated areas and investors may purchase with them with NSP funds.

However, investors have been reluctant because they don't think the 10 percent discount is sufficient to cover extensive repair costs.

According to HUD, rehabilitation and flood insurance expenses, coupled with lack of FHA financing, have made the cost of acquiring the properties prohibitive to eligible investors. This lack of affordability is impeding FHA's goal of revitalizing communities through expanded homeownership, the department noted.

The First Look Sales program would be in effect until May 31, 2013, when the NSP is scheduled to end.

Meanwhile, the discount for REO properties eligible for FHA insurance remains at 10 percent of the property's appraised value.