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.
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