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FHA EXTENDS WAIVER OF ANTI-FLIPPING REGULATIONS THROUGH 2012

Goods news this week from Washington, DC for real estate investors, and the real estate agents that represent them -

The temporary waiver of FHA’s "anti-flipping" regulations has been extended through 2012.

"Flipping" is the industry term of art for a real estate purchase that is quickly followed by a resale - presumably for a higher price and resulting (but not excessive) profit.

With certain limited exceptions, FHA rules prohibit insuring a mortgage on a home owned by the seller for less than 90 days. In other words, Buyers willing to purchase a property that want to rely on an FHA guaranteed loan would only be able to do so if the seller has owned the property long enough.

The FHA temporarily waived this regulation in 2010 through January 31, 2011, then extended the waiver through year's end.

The extension allows buyers to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales.

The idea here is to allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.

The Waiver does contain strict conditions and guidelines to prevent the predatory practices often associated with property flips - where properties are quickly resold at inflated prices to unsuspecting borrowers.

According to FHA waivers are limited to sales meeting the following conditions: 

  • All transactions must be arms-length between unrelated buyers and sellers.
  • If a re-sale price is 20% or more above the seller’s acquisition cost, the lender must document justification for the increase in value; and
  • The Waiver is limited to forward mortgages.
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.

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