HUD is extending its permissions to insure 90-day flips

FHA rules typically have a no flipping clause – which prohibits insuring a mortgage on a home owned by the seller for less than 90 days. In 2010 and 2011, however, FHA waived this regulation.   

Late last week, HUD announced another extension, permitting buyers to continue to use FHA-insured financing to purchase HUD-owned and bank-owned properties, no matter how long the homeowner has held the title, through December 31, 2012. FHA says the waiver will allow homes to resell as quickly as possible, which will hopefully help stabilize real estate prices and revitalize communities experiencing high foreclosure activity.

“This extension is intended to accelerate the resale of foreclosed properties in neighborhoods struggling to overcome the possible effects of abandonment and blight,” said Carol Galante, FHA’s Acting Commissioner. “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.”

The waiver includes strict conditions and guidelines to prevent predatory property flipping in which properties are quickly resold at inflated prices to unsuspecting borrowers.  All transactions must be arms-length, meaning that there is no link between the buyer and seller.   In cases where the sales price of the property is 20 percent or more above the seller’s initial purchase price, the waiver will apply only if the lender meets specific conditions, and documents the justification for the increase in value.

In doing its own research, FHA found that the process of acquiring, rehabilitating, and reselling foreclosed properties to prospective homeowners often takes less than 90 days.  As a result, it says prohibiting the use of its mortgage insurance for a subsequent resale within 90 days would adversely impact the willingness of sellers to consider offers from potential FHA buyers, because the risk of vandalism that comes with allowing a property to sit vacant over a 90-day period of time is too great.  

Comments

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