In speaking with many agents, I realize that there has been a buzz in the industry with many lenders screaming “halleluiah, the FHA 90 Day Property Flipping Waiver has been granted and that changes everything”!
Based on what I’ve heard, the new perception is that FHA abandoned the Flipping requirements and that borrowers can purchase resale homes of previous foreclosures by investors who scooped up those properties from lenders only to sell them within a short period of time. That perception is entirely inaccurate
The reality is that the 90 day (and 180 day) requirements remain intact (with adjustments) and if anything, FHA has lightened requirements with respect to lenders selling homes obtained through foreclosure. The past requirement was that only state or federally chartered lending institutions and the GSA’s (Fannie Mae, Freddie Mac, HUD, etc.) were completely exempt but there was an approval process required. Even with the exemptions, lenders were required to track title insuring that the above institutions fit the requirement also validating the lender’s charter. Beyond that, a little known fact is that lenders were required to forward evidence of the seller’s status to the regional FHA Homeownership Center with a waiting period to receive approval of the exemption.
This is where things got tricky! Often, after obtaining a home through foreclosure, many servicing lenders transferred title to an affiliate or a property disposition firm (not a state or federally chartered institution) and if that happened, FHA would not grant the exemption regardless of the affiliation. Based on this new rule, all lenders who have foreclosed on properties may sell them to our borrowers within 90 days and the extra approval step with FHA which was often time consuming, has been eliminated. In addition, FHA has required within 180 days that origination lenders order two appraisals for any properties with a sales price more than two times the amount of purchase including the exempted entities listed above (example foreclosure purchase of a home at 50,000 sold for 100,000). This requirement remains intact for all resale sellers but with the new waiver is not in effect for lenders selling homes taken back via foreclosure.
So as you can see, while there are changes, the full impact is not as dramatic as many lenders had advertised early on and I want to make sure you have the right information. I’ve taken the liberty of including a copy of the partial news release from FHA as well as links so you can review the full release:
Temporary Property Flipping Waiver:
The temporary waiver of the property flipping rule will permit lenders to more easily sell properties acquired as a result of foreclosure to homebuyers who use FHA financing. Both lenders and the property disposition firms they hire (or with whom they are affiliated) are now exempt from the 90-day lock-out period that once prevented homebuyers from using FHA financing to purchase properties that were owned by an individual/entity that held the property for less than 90 days. 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.
The waiver is effective for all FHA mortgage insurance endorsement requests on or after June 9, 2008 and expires for all loans for which the sales agreements were signed by the seller and buyer prior to June 8, 2009. Again, the exemption applies only to the initial sale of a foreclosed property and does not extend to a subsequent sale of that property.
FHAConnection is being modified to permit lenders to enter specific data about the waiver eligibility on foreclosed properties, on the Appraisal Logging screen. The systems modifications will be completed by early next week. Although lenders will not be required to submit documentation requesting a waiver on the foreclosure transaction to the applicable Homeownership Center prior to entry of appraisal logging data, lenders must include this documentation in the endorsement file. Further instructions are forthcoming about the system modifications and will be posted on the FHAC Message Board and this listserv.
To read the press release please visit: http://www.hud.gov/news/release.cfm?content=pr08-082.cfm
To read the waiver document please visit: http://www.fha.gov/ and click on the “property flipping waiver” link or link directly to:
Visit FHAConnection on-line at: https://entp.hud.gov/clas/index.cfm
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