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FHA Expands Foreclosure Alternatives in Effort to Stem Losses

The Federal Housing Administration is increasing the number of borrowers with loans eligible for streamlined short sales and transactions in which they give up their properties to avoid foreclosure.

Owners of second homes and those at imminent default risk can gain approval for the two foreclosure alternatives without submitting documentation substantiating financial hardship, the FHA said in a notice sent to lenders this week. The option was previously available only to borrowers living in the mortgaged property who had already defaulted.

“This is consistent with our efforts to increase recoveries through FHA loss mitigation by expanding and strengthening pre-foreclosure and asset disposition alternatives,” Charles Coulter, deputy assistant secretary for single-family housing, said in an e-mail.

The FHA, which insures mortgages against default, has been strengthening its efforts to minimize losses on loans that it backed as the housing bubble burst. The agency is facing a nearly $1 billion shortfall in the value of its insurance fund by the end of the fiscal year.

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