The Biden administration is moving to give individual owner occupants, families and nonprofits more opportunities to purchase homes that have been foreclosed on before they’re snatched up by large investors.

The changes to the guidelines for sales of foreclosed homes with federally-backed mortgages are part of a plan to “create, preserve, and sell” 100,000 affordable homes for homeowners and renters over the next three years.

In addition to scaling back sales of foreclosed properties to investors, the Biden administration will expand federal programs that help finance the construction of affordable housing, and work with state and local governments to roll back exclusionary zoning policies that limit new home construction.

Marcia Fudge

“These actions will expand access to critical capital for state Housing Finance Agencies, empower local communities to build more affordable housing using the historic investments contained in the American Rescue Plan, and advance equitable housing policies such as inclusionary zoning practices,” Housing Secretary Marcia L. Fudge said in a statement.

Wednesday’s announcement gets several federal agencies working on affordable housing issues while Congress debates the Biden administration’s more ambitious “Build Back Better Agenda,” which is geared at providing investments that would enable the construction and rehabilitation of more than 1 million affordable housing units.

To accomplish that, Congress would need to expand the Low-Income Housing Tax Credit (LIHTC), and provide more funding for the HOME Investment Partnerships program, the Housing Trust Fund, and the Capital Magnet Fund.

Mortgage Bankers Association President and CEO Bob Broeksmit welcomed the news.

“The lack of supply is a huge problem, and HUD and FHFA should do what they can administratively while Congress considers more significant initiatives,” Broeksmit said. “MBA looks forward to continuing to work with the administration, Congress, and all other stakeholders on ways to address supply constraints and ensure government programs appropriately complement private capital to help both renters and homeowners.”

In a recent report, the National Association of Realtors concluded that the rate of housing production has slowed over the past two decades, falling short by an estimated 5.5 million new units from 2001 to 2020. NAR estimates builders will have to construct more than 2 million new housing units a year for the next decade to bridge the gap.

In the meantime, the Biden administration is developing guidelines that will provide an exclusive listing period during which government entities, non-profits and owner occupant buyers will be invited to submit bids for “Second Chance” sales of FHA-insured foreclosed properties before they’re offered to investors.

Second Chance Claims Without Conveyance of Title (CWCOT) sales, which allow loan servicers to sell foreclosed properties directly to third parties without conveying them to HUD, are now the most common way FHA foreclosures are sold.

“This sales method reduces costs for taxpayers but too often, properties are sold to large investors, who either flip them for profit or rent them out,” the White House said in a fact sheet detailing the proposed changes. “Owner occupants and non-profits, who are more likely to need financing and are less aware of the CWCOT program, often don’t have a fair shot to purchase these properties.”

Institutional investors posted their highest share of home purchases in six years during the second quarter of 2021, according to a recent analysis by Attom Data Solutions. Attom reported that institutional buyers accounted for the greatest share of recent sales in Mississippi (11 percent), Arizona (10.4 percent), Georgia (8.8 percent), Nevada (7.6 percent) and North Carolina (6.7 percent). Last year, investors were most interested in markets where prices were low and the population was growing, a CoreLogic report found.

The Biden administration also wants to give owner occupants a better shot at purchasing homes repossessed by HUD, Fannie Mae, and Freddie Mac.

Currently, potential owner occupants and nonprofits get an exclusive “first look” at those properties, a period of 10 to 20 days when investors can’t bid on them. FHA, Fannie and Freddie will extend those first look periods to 30 days, the White House said.

Homebuyers can search for HUD-owned properties at HUD Homes. To search for homes in Fannie Mae’s REO inventory, visit HomePath.com. Freddie Mac foreclosures are listed on HomeSteps.com.

Forbearance programs that allowed homeowners with government-backed mortgages to put their monthly payments on hold during the pandemic will be expiring over the next few months. As of mid-August, 3.25 percent of mortgage borrowers, or 1.6 million homeowners, remain in forbearance programs that allow them to take a break from making their payments.

But all told, HUD, Fannie and Freddie have only a little more than 12,000 single-family homes in their “real estate owned” (REO) inventory.

A moratorium barring foreclosure proceedings against homeowners with federally-backed mortgages expired at the end of July. But before initiating foreclosures against borrowers who are 120 days behind on their payments, federal regulators expect loan servicers to reach out to borrowers and give them a chance to apply for assistance.

Black Knight data shows only 145,360 homes were at some stage of the foreclosure process in June, compared to a peak of 2.3 million active foreclosures in December, 2010, at the height of the last housing bust.

Email Matt Carter

HUD | mortgages
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