In an effort to continue stabilizing home values and improve conditions in
communities experiencing high foreclosure activity, Acting Federal Housing
Administration Commissioner Carol Galante extended a temporary
waiver of FHA’s anti-flipping regulations through 2012.
“This extension is intended to accelerate the resale of foreclosed properties
in neighborhoods struggling to overcome the possible effects of abandonment and
blight,” Galante said. “FHA remains a critical source of mortgage financing and
stability and we must make every effort that to promote recovery in every
responsible way we can.”
With certain exceptions, FHA rules prohibit insuring a mortgage on a home
owned by the seller for less than 90 days. In 2010, however, FHA temporarily
waived this regulation through Jan. 31, 2011, and later extended that waiver
through the remainder of 2011. The new extension will permit buyers to continue
to use FHA-insured financing to purchase HUD-owned properties, bank-owned
properties, or properties resold through private sales. It will allow homes to
resell as quickly as possible, helping to stabilize real estate prices and to
revitalize neighborhoods and communities.
The extension is effective through Dec. 31, 2012, unless otherwise extended
or withdrawn by FHA. All other terms of the existing waiver will remain the
same. The waiver contains strict conditions and guidelines to prevent the
predatory practice of property flipping, in which properties are quickly resold
at inflated prices to unsuspecting borrowers. The waiver continues to be limited
to sales meeting the following 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 apply only if the lender
meets specific conditions and documents the justification for the increase in
value; and
-The waiver is limited to forward mortgages and does not apply to the Home
Equity Conversion Mortgage (HECM) for purchase program.
Since the original waiver went into effect on Feb. 1, 2010, FHA has insured
nearly 42,000 mortgages worth more than $7 billion on properties resold within
90 days of acquisition.
FHA research finds that in today’s market, acquiring, rehabilitating and
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.