January 31, 2011 (Chris Moore)
The Federal Housing Authority (FHA) has followed through on its recent proposal of extending the suspension of its “anti-flipping” rule through the remainder of 2011. Since the waiver originally went into effect the FHA has insured more than 21,000 mortgages worth over $3.6 billion on properties resold with 90 days.
FHA regulations typically prohibit insuring a mortgage on a home owned by the seller for less than 90 days, but in February of last year the FHA temporarily waived this regulation as their research had shown that acquiring, rehabilitating, and reselling distressed properties often takes less than 90 days.
By prohibiting the use of FHA mortgage insurance for a subsequent resale within 90 days of acquisition, investors were reluctant to purchase foreclosures due to the higher costs incurred of holding on to the property, especially at a time when nearly half of all homes sold have FHA mortgages.
“As I noted when we first announced this policy change early last year, because of the tightened credit market, FHA-insured mortgage financing is often the only means of financing available to potential homebuyers,” FHA Commissioner David Stevens said. “Today I can report that this policy change has been effective.”
Bruce McBarnette, Esq., president of Summit Connection LLC, said, “Anti-flip rules are useful to protect buyers in an appreciating market where people are more likely to be deceived by a grossly inflated appraisal. In this market, however, with prices still falling in many areas, people are not as likely to be fooled by fraudulent appraisals. Anti-flip rules make it more difficult for investors to buy and renovate homes. This puts a drag on the real estate market at a time when there is a glut of foreclosure homes that have to be bought and fixed up, if we want a rapid economic recovery. There were over 2.8 million foreclosure filings last year, which is an incredibly high number.”
Some of the rules, however, still remain in place to protect FHA mortgage borrowers against some of the other past predatory practices associated with “flipping:”
– 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.
Tags: FHA, flipping, anti-flipping, mortgages, investor, mortgage fraud, appraisals, renovate homes, FHA mortgages, predatory practices