Shaun Donovan, secretary of the US Department of Housing and Urban Development (HUD), will temporarily permit buyers to use FHA-insured financing to purchase real-estate owned (REO) property to stave off vacancies. The waiver will take effect on February 1, 2010 and remain available for one year. It will be subject to extension or withdrawal by the Federal Housing Administration (FHA) commissioner David Stevens. To protect FHA borrowers from predatory “flipping” practices, where properties are quickly resold at heightened prices to borrowers, HUD laid down some general conditions. The transactions must be at arms-length, with no identity of interest between the buyer and seller. If the sales price of the property is 20% or more above the seller’s acquisition cost, the waiver will only apply if the lender meets certain requirements. Also, the waiver only applies to forward mortgages, not to the Home Equity Conversion Mortgage (HECM) for purchase program. “This change in policy is temporary and will have very strict conditions and guidelines to assure that predatory practices are not allowed," Donovan said. With some exceptions, FHA currently does not insure a mortgage if the seller owned the home for less than 90 days, but this temporary waiver will give access to FHA borrowers into a “broader array” of recently foreclosed properties. “This change in policy is temporary and will have very strict conditions and guidelines to assure that predatory practices are not allowed," Donovan said. Other government initiatives are attempting to boost the REO sale process in order to clear out vacancies. The REO Insider reported that the governor of Colorado will try to push new legislation through the 2010 state session, which will provide a minimum of four months for lenders to sell an abandoned property. Write to Jon Prior.