In what could be a controversial move the Federal Housing Finance Agency (FHFA) has directed the government sponsored enterprises (GSEs) to allow foreclosed homeowners to repurchase their former homes at fair market value. Prior to Tuesday’s directive foreclosed homeowners were required to pay Freddie Mac or Fannie Mae the entire amount that had been owed on their mortgage prior to foreclosure. This requirement applied as well to any third party who sought the buy the home for the benefit of the previous borrower/owner. This requirement had meant that the GSEs had to treat such prospective purchasers differently than others who wished to purchase the property and were allowed to do so at the fair market price as determined by the GSEs.
“This is a targeted, but important policy change that should help reduce property vacancies and stabilize home values and neighborhoods,” said FHFA Director Melvin L. Watt. “It expands the number of potential buyers of REO properties and is consistent with the Enterprises’ practice of requiring fair-market value for those properties.”
The policy change does not alter the existing rule that a borrower who has gone through a foreclosure on a GSE owned or guaranteed loan must wait a minimum of three years after the foreclosure to regain eligibility for another GSE related loan. The REO property purchased for the benefit of the prior owner must also still be intended to be occupied by that owner as a primary residence.
The policy change is limited to Fannie Mae and Freddie Mac REO inventory of single-family homes as of November 25, 2014. FHFA estimated that the two companies have approximately 121,000 properties in their combined REO inventory. Certain property exclusions may apply and will be handled by the GSEs on a case-by-case basis.