FHA Rewards the Good Short-seller…

Our local mortgage person email us yesterday with the news that the FHA has issue some new guidance that will allow what could be called the “good short-seller” to get FHA financing again immediately. So, what defines a “good short-seller?” Apparently if the short-seller was not late with payments and the bank that held the old mortgage will certify in writing that they do not owe anything on the old mortgage, i.e. no default judgment luring in the background; then a person who just closed on the short sale of their old home can get a new FHA loan to buy a new home.

This program makes a lot of sense. Many people, through no fault of their own have been put into the position where a short sale is the only way to avoid a foreclosure. Sometimes it’s caused by one of a two-income family getting laid off. Sometimes there are health issues or other things that come up that are out of the control of the borrower. Maybe they were able to keep up with things by stripping savings for a while or by exhausting unemployment benefits. For whatever reason they finally got to the end of their ability to keep up with the old mortgage and a short sale was the only solution.

The fact that these homeowners were able to get their bank to agree to the short sale without being in default is already a minor miracle. Now the FHA adds to their good fortune by making it possible to get a mortgage on a smaller, more affordable home that they will be better able to keep up with. That’s just good policy. These people have proven that they are responsible and trustworthy already and having a way to reward their good efforts to keep up with their obligations and to retain them as homeowners is a good thing.

We have to report so much bad news and so many failed programs to help distressed homeowners that it’s nice to have some good news to report. This program doesn’t cost the taxpayers anything and it helps keep good, honest people in a time when there are very few providing any real help. While I suspect that few will qualify right now, just having this option out there may help change behavior in some who might otherwise have let things go into default before doing the right thing. Let’s hope the banks cooperate.