One issue with FHA and foreclosures is that the bank does not have to make any disclosures regarding the foreclosed property. So there is no guarantee as to the condition of the property and it's up to the buyer to verify that with all the appropriate inspections. But, even inspections can miss things that can be extremely important (cracked slabs and foundations, for example). And, in that case, they would have granted a loan on a property that is worth a lot less than it was appraised for.
With a property being sold by an individual, the seller must disclose all conditions of the house that they are aware of. If any known fault with the house is not disclosed, but subsequently discovered by the new buyer, the buyer can go back and sue the previous owner - and the selling agent - for non-disclosure. So, the holder of the FHA loan can use settlement money to make repairs and the home retains its appraised value.
Note, however, that the statute of limitations is generally 2 years on non-disclosure issues (it varies from state to state).