Saturday, January 16, 2010

HUD Changes FHA Rule for Flipping

by Calculated Risk on 1/16/2010 05:00:00 AM

From HUD: HUD takes action to speed resale of foreclosed properties to new owners (ht Soylent Green is People)

... With certain exceptions, FHA currently prohibits insuring a mortgage on a home owned by the seller for less than 90 days. This temporary waiver will give FHA borrowers access to a broader array of recently foreclosed properties.
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In today's market, FHA research finds that acquiring, rehabilitating and the reselling these properties to prospective homeowners often takes less than 90 days. Prohibiting the use of FHA mortgage insurance for a subsequent resale within 90 days of acquisition adversely impacts the willingness of sellers to allow contracts from potential FHA buyers because they must consider holding costs and the risk of vandalism associated with allowing a property to sit vacant over a 90-day period of time.

The policy change will permit buyers to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. This will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.
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The waiver will take effect on February 1, 2010 and is effective for one year, unless otherwise extended or withdrawn by the FHA Commissioner. To protect FHA borrowers against predatory practices of "flipping" where properties are quickly resold at inflated prices to unsuspecting borrowers, this waiver is limited to those sales meeting the following general conditions:
•All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.
•In cases in which the sales price of the property is 20 percent or more above the seller's acquisition cost, the waiver will only apply if the lender meets specific conditions.
•The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.
Specific conditions and other details of this new temporary policy are in the text of the waiver, available on HUD's website.
The title of the document is WaivPropFlip2010.pdf (probably stands for Waiver Property Flipper - aptly named)!

To be clear, this change isn't to help flippers buy - this change is to help homeowners to buy from flippers. Previously the flipper had to own the home for 90 days for the next buyer to obtain an FHA loan, now the period can be less. The 20% price increase is not a limit, however higher price increases require extra verification.