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Financing of FHA Real Estate Owned

January 7th, 2000 

To: All Originating Agents

Re: Financing of FHA Real Estate Owned

As some lenders may already be aware, VHDA has been experiencing difficulty in obtaining executed Affidavit of Sellers’ from FHA, when the property transferring is an FHA Real Estate Owned (REO).

I have recently received an e-mail from the Philadelphia HUD office, confirming that FHA counsel does not consider it necessary for FHA to execute the Affidavit. Since the document currently used is a requirement of the Mortgage Bond Subsidy Tax Act of 1981, the Department of the Treasury and mandatory to our loan program, VHDA will no longer allow the use of tax-exempt bond proceeds for the financing of FHA REOs.

Unfortunately, this will affect all programs funded by our tax-exempt bonds, including but not limited to, all of our FHA insured products, including the STEP and PLUS products, VA guaranteed loans, Rural Development and PMI insured loans, as well as, uninsured loans funded through these bonds.

Since the FLEX ALT products are funded through the sale of taxable bonds and the Affidavits are not a requirement of this loan product, we will continue to allow the use of our 97% FLEX ALT program to be used for the purchase of FHA REOs.

We regret that we have to restrict the use of our program, however until the issue is resolved, it is in the best interest of our potential homebuyers. Should you have any questions regarding this issue, please do not hesitate to contact me.


Michele G. Watson

Assistant Director of Single-Family Loan Origination

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