It might sound a little bittersweet, but former homeowners are now authorized to purchase the properties they lost to foreclosure at fair market value, instead of having to pay back the entire amount owed on the old mortgage.
This new rule applies to real estate owned (REO) properties held by Fannie Mae and Freddie Mac.
The Federal Housing Finance Agency (FHFA) announced the news today in a press release, with director Met Watt referring to it as a “targeted, but important policy change” intended to reduce the number of vacant homes and stabilize property values.
In other words, a larger pool of potential buyers should lead to fewer empty homes, which in turn should boost home prices and aid the ongoing housing recovery.
Previously, borrowers who lost their homes to foreclosure couldn’t repurchase them at their current value. Instead, they were forced to pay off the associated mortgage balances if they wanted the properties, something I doubt anyone actually did.
The old rule also applied to anyone who attempted to buy a foreclosed property on behalf of the previous homeowner.
Going forward, previous homeowners (or third-parties who purchase on their behalf) will be able to scoop up their old properties at their present value, as determined by Fannie and Freddie.
This policy change is limited to properties held by the pair as of November 25th, 2014.
For the record, the fair-market value policy already applied to purchasers of REO properties who did not originally own the homes.
If a former homeowner wishes to purchase their old property (or have someone buy it for them), it must be used as a principal residence. Simply put, you can’t buy your old home and rent it out.
The FHFA also noted that some property exclusions may apply and will be dealt with on a case-by-case basis.
At the moment, Fannie and Freddie hold about 121,000 REO properties in their collective inventory. It’s unclear how many former owners want to move back in.
If you’ve lost your home and want it back, you might be able to reacquire it more easily, though it should be noted that home prices have surged in recent years. So you’ll probably still pay more than you originally did, but I suppose it’s better than nothing.
However, you’ll need to be able to qualify for a mortgage again (assuming you can’t pay with cash), which can be difficult after experiencing a foreclosure.
The timeline to get a mortgage after foreclosure ranges from three to seven years for conventional loans, depending on the circumstances involved. It can be as short as one year via the FHA.