|HUD No. 00-90|
|Further Information:||For Release|
|In the Washington, DC area: 202/708-0685||Monday|
|Or contact your local HUD office||May 1, 2000|
HUD BEGINS SELLING HOMES TO LOCAL GOVERNMENTS FOR $1 EACH
WASHINGTON - The Department of Housing and Urban Development today began selling homes to local governments at a price of only $1 each, to create housing for families in need and to help revitalize neighborhoods, Secretary Andrew Cuomo announced.
Under the $1 Home Initiative, single-family homes that are acquired in foreclosure actions by the Federal Housing Administration (which is part of HUD) are eligible for sale to local governments around the nation for $1 each whenever FHA is unable to sell the homes for six months.
More than 1,000 homes are initially eligible for sale to local governments under the initiative, and additional homes will become available for sale each month.
Hundreds of local governments have informed HUD they are interested in buying $1 homes. Newport News and Norfolk, VA; Pittsfield, MA; Rockford, IL; and San Bernadino, CA have already agreed to purchase homes.
"These $1 homes will unlock the door to homeownership for struggling families and will help build better futures for neighborhoods," Cuomo said.
By selling vacant homes for $1 after six months on the market, HUD will make it possible for communities to fix up the homes and put them to good use at a considerable savings. The newly occupied homes can then act as catalysts for neighborhood revitalization, attracting new residents and businesses to an area.
Local governments buying HUD homes for $1 can sell or rent them to low- and moderate-income families, to first-time homebuyers, or to groups that will use the homes to provide services such as child care centers or job training centers.
Homes in extremely deteriorated condition, where rehabilitation is not feasible, will be demolished by HUD and the vacant lots will be offered for sale to the local government for $1.
The initiative won't cost taxpayers a penny. Because of improvements in FHA management and because few FHA-insured home loans default, FHA's revenues exceeded expenses and the agency returned about $1.5 billion to the U.S. Treasury in 1999.
The $1 Home Initiative complements a system HUD instituted last year under which contractors rather than HUD employees sell FHA-owned homes. Under this system, the average time it takes to sell a home has dropped by 38 days and the amount of money HUD recovers from each sale has increased by an average of $4,500 per home. With more than 50,000 sales to date, the new system has saved HUD more than $225 million.
FHA currently insures about 6.7 million mortgages. When homeowners fail to make their mortgage payments, FHA first tries to help them stay in their homes through foreclosure avoidance. If this is not successful, the lender forecloses on a home and conveys it to FHA in exchange for FHA payment of the outstanding mortgage balance. FHA then puts the home up for sale.
The vast majority of FHA-owned homes sell within six months. For example, in the past six months FHA has sold about 39,000 homes, while only about 3,000 homes have been on the market for six months or more.
Last year FHA sold about 6,500 homes to local governments and community-based nonprofit organizations through the Direct Sales Program. This program offers homes located within a revitalization area that are in need of repair for sale at 30 percent discounts off the appraised value. The program, which sells homes as soon as they become available to FHA, will continue.
HUD has implemented many reforms at FHA since Cuomo became Secretary. HUD has reorganized and consolidated 81 field offices into four state-of-the-art home ownership centers, approved and adopted Freddie Mac's and Fannie Mae's automated underwriting systems, and developed an FHA scorecard, which will be available to the marketplace later this year.
Eighty percent of FHA loans go to first-time homebuyers. In addition, FHA insures about 40 percent of all home mortgages to African American and Hispanic homebuyers.
FHA does not make mortgage loans directly, but rather insures loans made by private lenders to homebuyers. Because FHA mortgage insurance protects lenders from losses, it has enabled 30 million American families who would otherwise be locked out of the mortgage market and homeownership to qualify for mortgages.
FHA-insured loans also benefit homebuyers in these ways:
- FHA downpayments of 3 percent are lower than the minimum that many lenders require for non-FHA mortgages. Higher downpayments are a major roadblock to homeownership.
- FHA's requirement for homebuyer credit ratings are more flexible than those set by many lenders for non-FHA borrowers.
- FHA permits homebuyers to use gifts from family members and non-profit groups to make their entire downpayment, while conventional loans generally require homebuyers to come up with a portion of the downpayment from their own funds.
- FHA permits a borrower to carry more debt than a private mortgage insurer typically allows.