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FHA Suspends 90-Day Rule, But Will Flippers Really Benefit?

By
Mortgage and Lending with Province Mortgage Associates - NMLS #2861

News broke today that FHA will be temporarily waiving a rule that has been impeding bank resale of foreclosed properties.

The so-called "90-day rule" was implemented to stop property-flipping schemes that utilized multiple investors to rapidly increase the value of a home, while stripping that value out through larger and larger mortgages.  This scheme hurt many individual homeowners who were often left holding the bag on loans, although in many cases the final purchaser was often complicit in the fraud, receiving a portion of the proceeds as compensation for ruined credit.

A side effect of this rule has been a substantial delay in the ability of foreclosing lenders to resell to borrowers wishing to use FHA-insured financing.  Because of this rule, a lender must have taken title a minimum of 90-days before contracting to sell to a new homeowner.  With the temporary waiver, that delay is now eliminated. 

Of course, not all bank foreclosed properties are eligible for FHA financing, not only due to the now waived 90-day rule, but more frequently due to the condition of those properites, and the banks unwillingness to make required repairs.  Of specific note is the standard FHA requirement that all insured homes be owner occupied.  All the same, this change will have significant and immediate impact.

Of important note is that this rule change does not apply to all sellers.  According to one article, the waiver will only be allowed for banks, and other property disposition companies acting on their behalf.  Investors who purchase properties, repair them, and then resell ("Fix-and-Flip"), would not be eligible for this exemption. 

Larry Bettag
Cherry Creek Mortgage Illinois Residential Mortgage License LMB #0005759 Cherry Creek Mortgage NMLS #: 3001 - Saint Charles, IL
Vice-President of National Production

I've bookmarked this.  Very cool.  However, I think that ultimately the end servicers will determine if this program will be sold and bought....but you definitely have my curiousity here.

Jun 16, 2008 03:51 PM
Dan Hartman
Province Mortgage Associates - NMLS #2861 - Providence, RI

Joan,

Thanks for your input.  I agree this doesn't seem to be the most intuitive guideline change.  Thanks for visiting!

Larry,

I agree it is ultimately up to them.  I received this from one of our lenders on Friday:

Under the new waiver, homes that were foreclosed on and are being sold by the mortgage holder or on its behalf may be purchased by FHA borrowers without regard for the 90-day seasoning period. To prevent future flipping of any properties purchased through the foreclosure sales, the subsequent sales of the properties will continue to be subject to the standard regulatory requirements - lockout for the first 90 days and two appraisals required to justify any increase in value of 100% or more for sales that occur within 90 to 180 days. 

So, clearly, this lender has adopted the proposal.  I hope to see more soon!

Dan

Jun 23, 2008 02:18 PM
Ron Brown NMLS #270845
NMLS ID: 40831 - Federal Way, WA

I have a realtor who just asked me about this.  Do you know if there is a mortgagee letter regarding the change?  I have not heard anything about this from any of my investors, and would like to "force" the issue to see if they will approve.

Jul 02, 2008 06:03 AM
Mary Haughie
Triton Insurance Group - Miami, FL

There has not been a Mortgagee Letter provided on this, but here is the link to the waiver:

http://portal.hud.gov/pls/portal/docs/PAGE/FHA_HOME/PRESS/PROPERTY_FLIPPING_WAIVER/PROPERTY%20FLIPPING%20WAIVER%20REQUEST.PD

The reason there is not a lot of talk about this from the lenders is they are still figuring this out. Here are some suggestions to make the process easier. Seller needs to be the same for contract, appraisal and title. Check your county records. If your contract is signed by a servicer, make sure to get a POA. All seller parties need to be reflected in POA. For example Wilshire Credit is the servicer for First NLC, make sure both names are reflected on POA. (The servicer cannot be reflected as seller on the Contract, Appraisal or Title, they are only authorized to sign. Make sure seller matches public records!)  Ask your relators for names and phone numbers for the sellers or any servicers involved and provide to the lender.

Jul 05, 2008 01:49 AM
Anonymous
Chad

So...what if I sold my house to someone and I held the full mortgage(seller financing).  Say that person does not pay the mortgage and I take the property back with a deed in lou of foreclosure.  Technically I am a mortgagee but I am not a bank or financial institution.

According to section 4 of the flipping rule, Properties aquired by non state or federal mortgagees are still eligible for the waiver.  State and Federally chartered lenders were already exempt from the flipping rule, so why would the issue a waiver for the people who are already exempt?

http://portal.hud.gov/pls/portal/docs/PAGE/FHA_HOME/PRESS/PROPERTY_FLIPPING_WAIVER/PROPERTY%20FLIPPING%20WAIVER%20REQUEST.PDF

 

It all boils down to the lender giving the loan.

Jul 10, 2008 03:22 AM
#6
Fred Chamberlin
Guild Mortgage Co - Oak Harbor WA - Oak Harbor, WA
Oak Harbor/Whidbeynulls, #1 Experienced FHA Mortgage Consultant

Another help to our current problems would be extending the 203k program to investors again. When I first came into the business, this was one of the programs used to re-vitalize neighborhoods. Now, it isn't something that is available. Owner occupied is great, but investors will be the ones to help pull the real estate market back up.

Jul 10, 2008 05:13 AM
Dan Hartman
Province Mortgage Associates - NMLS #2861 - Providence, RI

Mary -

Thanks for posting that link and answering Ron's questions.  I've encounterd some challenges lately with FHA deals where one servicer's REO division is marketing on behalf of another forecloser; when this happens, it becomes very important to make sure that there is clarity as to exactly who is the seller.

Chad -

Thanks for your input!

Fred -

That's one of the best ideas I've heard recently.  Currently there is some private money available to investors, but mostly at twice what the cost would be if they were able to get 203(k) money. 

Thanks for your input!

Dan

Jul 11, 2008 06:41 AM
Anonymous
Denise in AZ

I wonder what it would take to have investors 'flippers' benefit from this waiver?  I'm a Realtor in AZ and one of my current clients started buying alot of bank owned properties this year, he's been fixing them up and I've been putting them on the market for him.  One of them he hasn't had for 90 days yet and we've had to turn offers away and ask the buyers to come back with their offer after the 90 days are up.   It really isn't fair for anyone that we have to do this, especially in THIS market.  Investors are playing a 'key' role in getting all these 'distressed properties' off the market, the least the Federal Housing Adminsitration can do is cut them some slack as well! 

Jul 15, 2008 11:48 AM
#9
Anonymous
Krystal

I am a buyer caught up in the 90 day mess . I am outraged that in this market that the seller and I are being punished for other peoples mistakes . I personally have written FHA and even spoken to a Rep with Tom Davis's office . This 90 day rule for investors is outdated . We need investors right now to restore these homes . I have looked at plenty bank owned homes . They are falling apart!!! Everything from mold , broken windows , gutted out from the past owners and even vagerants living in them . Plus to top it off the banks have not been easy to work with . I wrote five contracts . I even offered over 30ks more . I did not get one of those homes . I have this great home and can not close until this 90 day thing is up . I beg that all of you agents , brokers and investors write FHA or call your congressman ( they do call back ) and bug them about revising this rule . My communtiy is falling apart here . We need investors to restore our neighborhoods . I am a buyer and I thank this guy who bought my soon to be home ( bank owned ) . Its beautiful .... Now I just want to settle and soon.

Jul 15, 2008 12:46 PM
#10
Dan Hartman
Province Mortgage Associates - NMLS #2861 - Providence, RI

Denise, Krystal,

I completely agree with you about the need for investors to step in.  Around here, there are a number of homes that banks are trying to sell, but they are finding they cannot because the homes condition makes them unsaleable to normal buyers.  Many investors don't wish to wait 90 days to resell, so are sitting on the sidelines.  Others are having a difficult time obtaining financing and are also stuck on the outside looking in.  I certainly hope that more financing options will be available to them soon!

Dan

Sep 08, 2008 10:28 AM
Anonymous
1st Time Buyer....

My husband and I have been looking for a new home for over a year now. We found a beautifully restored farmhouse in Seattle yesterday. We met with our agent, settled on an offer price etc. This morning we got a call from the listing agent telling us that FHA loans cannot be considered for 90 days!! I had never heard about this before. Apparently the seller purchased the property on April 30th, subdivided the lot and sold the lot to an investor and then moved out. Now we have to wait 90 days before we can even present an offer to the seller. We thought about writing up a 90 day lease agreement with the seller, but I don't think he would be incented to work with us on such a complicated offer. The house was just listed this weekend. This is my dream home! My husband and I don't have enough money saved for a conventional loan. Is FHA the only way??? Any suggestions would be greatly appreciated.

May 11, 2009 07:22 AM
#12
Dan Hartman
Province Mortgage Associates - NMLS #2861 - Providence, RI

Hi, 1st Time Buyer,

Thanks for your question. FHA loans are a very popular program because of the relative stability of the program, and the ease with which it provides 96.5% financing. That said, they don't work for everything, especially for recently rehabilitated and flipped properties. You may want to look into other types of financing for this property, as you may qualify for as much as 95% financing using conventional sources. According to mortgage insurer MGIC, they offer to insure loans as high as 95% in King county. You may want to talk to your mortgage provider about this option to see if you qualify. If you have any other questions, please email me. I'd also love to hear your results, if you don't mind posting here.

Thank you!

Dan

 

 

May 11, 2009 10:27 AM
Anonymous
1st Time Buyer....

Hi Dan,

Thank you for your candid response. I appreciate the feedback.

We spoke with the listing agent for the property that we're interested in. I asked him if he had any suggestions on ways to work around the 90 day FHA rule. He said that the seller was willing to do a 80-15-5 loan on this, meaning that he would carry back 15% on a Deed of Trust, loan would be for 80% and we would come up with 5% down. This would be at 6.5%for 30 year amort with a 5 year cash out.

We checked with our mortgage broker and found out we do qualify for this type of loan. However, the downside is that we have to come up with an estimated $30,000 vs. the original $20,000 we set aside for the FHA closing costs.

I know we will get the $8,000 tax credit next Spring, however I don't believe we can get this money early in Washington State.

We're at a loss!

May 13, 2009 05:04 AM
#14
Dan Hartman
Province Mortgage Associates - NMLS #2861 - Providence, RI

Hi, 1st Time Buyer,

The cash required is a bit higher, but I'm surprised its that much higher. Is it a question of higher closing costs required for the other scenario? I might be able to give you more specific advice knowing some details such ast he purchase price for the home.

As for the tax credit, that is a federal item and is thus unrelated to the state where you live. I would suggest checking with the person who prepared your taxes last year for advice in that area. If you did them on your own now might be a good time to look into a CPA for the future. From the several CPAs I've spoken with, the $8000 credit is something that can be claimed immediately by filing an ammended tax return for 2008.

Thanks,

Dan

May 13, 2009 06:47 AM
Anonymous
1st Time Buyer....

Hi Dan!

Thanks again for getting back to me. The seller emailed me this morning saying...

"I would prefer the carry back option be looked into first. I have a call into Sterling Savings Bank (my underlying lender) quoting me a price on a loan. They will do a deal like an 80/15/5 but would do a 89% first (30 yr fixed) and then I would carryback a second less the buyers 3.5% down."

He also said that the 90 day lease (for FHA) is also a possibility if the 80/15/5 option doesn't pan out. The closing costs is the main issue between the two loan types. Here is the sale history -

Date Event Price Appreciation Source
May 09, 2009 Listed $419,950 --  
Apr 30, 2009 Sold $460,000 -1.7%/yr Public Records
Mar 30, 2006 Sold $485,000 10.6%/yr Public Records
May 19, 1998 Sold $220,000 20.7%/yr Public Records
Jun 24, 1993 Sold $87,500 -- Public Records

When the seller purchased the home he subdivided the lot and sold part of the yard to a developer who is building a 3 story home. The neighbors aren't pleased to say the least!

Thanks for the info on the $8,000 tax credit. This is something I need to look into!

May 14, 2009 06:17 AM
#16
Anonymous
Bart Bartholemew

This is a joke! This only helps banks sell their properties.  Most are in such disrepair they will not even meet FHA guidelines.  This 90 rule hurts the investor which buys these homes at auction, (taking enormous risk not seeing the inside of the house, nor getting title insurance), then has the task of evicting the former owner (takes months, after they have been living for free for the past 6-9 months), does 15-60,000 dollars in repairs, and tries to sell.  This 90 day rule untilmatley hurts the FHA buyer.  Anything good that is listed in bought by conventional buyers, the leftovers go to FHA buyers.  

Jan 16, 2010 08:02 AM
#17
Paul Tomlinson
Fox Valley Property Solutions - Montgomery, IL

I am an investor and I see this as a positive. I buy homes with cash, rehab, and then sell. With the new law as I've read it, I can do the rehab and turn around and get a property under contract (to sell) within 90 days. In the past year I've been told that I have to document repairs and cost anyway, so none of the stipulations will affect my business. By the time I'm finished rehabbing a property, it easily meets FHA guidelines... so to have the option of completing a property and get it under contract within the 90 days is a definite bonus.

Jan 17, 2010 11:53 AM
Anonymous
Steve

Investors do a lot of home work prior to buying on the court house steps.There not taking huge risks.

Jan 17, 2010 03:17 PM
#19
Dan Hartman
Province Mortgage Associates - NMLS #2861 - Providence, RI

Bart,

Thanks for your input. You have a point, and HUD has listened. See my new article here for the latest on the 90-day rule!

Paul,

I couldn't agree with you more! Rehabbers who are doing it right should have no problem with these rules.

Steve,

You're absolutely right. A wise investor knows what he's buying.

Thanks eveyone for visiting!

Dan

 

Jan 18, 2010 08:57 AM
Anonymous
Carmen

Hello Steve;

We made an offer on a property in California and here is the scenario'

The seller acquire the property in 01/2010 for $153K, they did some improvements on it, like new appliances,light fixtures, painting etc. we made an offer on this property for $190k, but before they accept our offer want to make sure that they can make up for the investment  with proof (receipts) + the 20% gain

Thanks

Jan 25, 2010 07:31 AM
#21