One of the U.S. government’s largest mortgage aid programs will suspend foreclosures for 90 days in areas affected by megastorm Sandy, U.S. Housing and Urban Development Secretary Shaun Donovan said on Monday.
“I directed all FHA (Federal Housing Administration) lenders to impose a moratorium on any foreclosures for 90 days in disaster-affected areas. We don’t want families to be victimized twice, once by the storm, and once by a forecloses,” Donovan told reporters on a conference call.
(Reuters)
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Why would the FHA want a storm-damaged home? The are probably hoping they can unload the properties more easily now. Let’s say I owe $200K on a $100K house, and suddenly the house is worth $50K. If the FHA forecloses, they get $50K of house to try to sell, but the original owner who might not have had the money to save the property from foreclosure before, might be more willing to come up with a smaller amount. This sounds like an act of charity, but is a reasonable business decision. The FHA is unlikely to have insured the houses it was insuring, so they took a “bath” (pun intended) and they might be better able to unload the damaged goods later, either to the owner or someone else.