The secretary of the U.S. Department of Housing and Urban Development (HUD), Shaun Donovan, announced on Friday, January 15, 2010 that the government agency will temporarily allow buyers to finance the purchase of real-estate owned (REO) properties with FHA-insured mortgage financing.

The temporary HUD offering becomes available on February 1, 2010 and will remain in effect for one year. Whether or not the program remains in place sits in the hands of David Stevens, who is the commissioner of the Federal Housing Administration (FHA).  

In the FHA’ resistance to borrowers that may try to use the financing option for investment house flipping, HUD established specific guidelines such as properties with a sales price of 20% or more above the price the seller bought the property for originally, the FHA financing is eligible only if the mortgage lender meets certain requirements. Borrowers can only use the FHA financing program for purchases and not to access the equity in an existing property.

As is the case with any program, there are some exceptions to the program such as the FHA will insure the mortgage if the seller owned the home for less than 90 days – in an effort to help out for properties that have recently been foreclose on.

While the policy change is temporary, the FHA issued a statement that “very strict conditions and guidelines” must be met so that predatory practices are stopped before they begin.

The new initiative by HUD is not the only one going into place to stimulate REO sales. According to the REO Insider some state programs are in process to help sell properties that have been abandoned by their owners

The Internet has many valuable resources for people shopping for a new home. All new homebuyers want a great deal, and in this economy, many people are promoting the value of finding homes in foreclosure. You may be able to find a great deal on a home in foreclosure, but using the Internet to find these homes can be a double-edged sword. Beware of websites promoting foreclosures, because they can turn around to haunt you in a variety of ways.

Websites that sell books on how to find and buy foreclosures.

One popular way that foreclosure-related websites attempt to part you from your cash is to sell electronic or ‘downloadable’ books on how to find and buy good foreclosure deals. While this information can be valuable, because finding the right foreclosure deal requires good research and the ability to accurately judge the condition and value of a property, you can find this information in other places without paying for an eBook.

Websites that charge subscriptions to access ‘foreclosure’ listings.

Another category of foreclosure websites that cross the line into ‘scam’ territory is websites that charge subscriptions to access foreclosure listings. These websites might sell you a database of foreclosures, or charge you for monthly access to online listings. Often, these listings are outdated and typically not worth the subscription fees. You can find foreclosure listings for free in your local newspaper, so beware of these paid subscription sites.

Foreclosure sites that sell your contact info.

Finally, some foreclosure sites not only charge you for information you can get for free elsewhere, but some sites actually sell your contact information to other people. RealityTrac, one popular foreclosure website, sells subscriptions to an online database of foreclosure listings which are outdated and inaccurate.

They also sell customer information to real estate agents and other realty-related companies. Check the Better Business Bureau database before you give your contact info to any foreclosure-related company on the Web to make sure they’re legitimate and won’t misuse your information.

The Federal Housing Finance Agency (FHFA) released first quarter 2009 foreclosure data. The results probably won’t astonish anyone who has been riding the bumpy road of the economy, where joblessness has reached its highest level since the early ‘80s. The FHFA report revealed that foreclosure rates for the fourth quarter of 2008 totaled 149,981 and increased to 243,824 by the end of the first quarter of 2009. This is slightly more than a 61% increase in a three-month period.

Gloomy Forecast Ahead for Foreclosures?

This leads many to speculate on what the future outlook for foreclosures holds. The first place to consider on what to expect in the future as far as foreclosures are concerned is to consider the change in the number of delinquencies. Since new late payment figures are the perfect indicator of what may come, take note that the FHFA has already reported that 615,000 mortgage loans had first time late payments during the first quarter of 2009.

Is Government Intervention working?

The really astonishing news is that without the stampede to loan modifications, this figure may be even worse. With the Federal Government urging lenders to modify loans rather than head straight to foreclosure without passing go, borrowers are lowering monthly mortgage payments and staying in their homes. This resulted in a decrease in foreclosure rates for those who turned to loan modification as an option of saving their home. In the fourth quarter of 2008, 65,000 homes were saved from foreclosure because of home retention efforts such as loan modifications. The retention rate increased to 78,000 from these same loan modification efforts in the first quarter of 2009.

With new retention and government programs being put in place, retention efforts and programs may keep foreclosure rates from reaching even higher.

With foreclosures on the rise nationally, investment opportunities are available for individuals and investors. When buying a foreclosure, follow the tips below to increase your opportunity for financial success.

Top 5 Foreclosure Buying Tips:

1.      Private Inspection- Avoid purchasing a property sight unseen as there may costly repairs associated with a property purchase. And, these costs can reduce your return on investment or your personal equity when purchasing a foreclosure property. Order a private inspection on the property you are considering for purchase to ensure that you have full disclosure on any potential defaults or issues.

2.      Review the Neighborhood- If possible, drive by and through the neighborhood surrounding the property you are considering for purchase. For resale, the area a home is located within is crucial.

3.      Review the Exterior- While you may not always be able to tell, reviewing the landscaping may tell you if someone has been recently taking care of the property. Many foreclosures sit on the market for several months and if no one is attending the property, there is an increased chance of issues that may need to be addressed.

4.      Budget Carefully- Not all foreclosures are a steal! Be sure to review your financial objectives, your financing options and add into your financial calculation for the possibility for unforeseen repair surprises. Set a budget and stick to it during the foreclosure buying process.

5.      Avoid Auctions- While you can certainly locate great financial opportunities at foreclosure auctions, you are often forced to make a decision on the spot. And, whenever decisions are made in this fashion, increased opportunities for financial risk and mistakes also increase.

Foreclosures offer the ability to profit through flipping, through buying to rent, for trading up to a larger property and for first time home buyers. By following these foreclosure buying tips, you are increasing your opportunities for success.