Has the FHA flipping rule really been waived?

Mortgage and Lending with Mortgage Solutions Financial

Lenders accross the land are taking different twists on the FHA flipping rule waiver.  Just to demonstrate how major lenders are treating this tender topic, I will list some examples from the largest national leaders.

Some things are simple, others not. On January 15, 2010, HUD issued a Waiver of Requirements of 24 CFR 203.37a(b)(2) revising exceptions to the FHA Flipping Rule policies. (Notice that HUD did not actually issue a Mortgagee Letter.) The FHA Flipping Rule prohibits FHA financing if the contract of sale for the purchase of the subject property is executed within 90 days of the prior acquisition by the seller, and the waiver temporarily puts this aside. Where do the various mortgage investors stand on following or not following the waiver?

Wells Fargo has taken the approach of being silent on the issue - and if WF is silent on an issue, the default policy is to follow the agencies with their policies. Therefore these loans are a "go".

Neither Bank of America, SunTrust, nor GMAC have adopted the FHA issued directive on the waiver of the 90-day FHA Flip Rule, however.

With other investors, the issue is not black and white. Chase will buy FHA loans with a sales contract executed in less than 90 days with overlays. If the property seller is a government entity or a Chase REO, and the sales price is less than 20% higher than the purchase price, it is ok. If the gain to the "flipper" is greater than 20%, the loan is unacceptable under the waiver. If the seller is a non-Chase bank, or even Chase, and the gain is greater than 20%, it is not eligible. The same 20% line applies to inheritances; private sales are not eligible.

CitiMortgage also has policy overlays. Any increase of sales price over seller acquisition costs should be documented if the increase is 10% or more, instead of the 20% allowed by Citi's original announcement. The increase in sales price over the seller acquisition cost may not exceed 20%, even if documented per the announcement. If the sales price is greater than $500,000, the increase in sales price over the seller acquisition cost may not exceed $100,000. For Citi, and other investors, all other requirements per the HUD Announcement must be followed.

For Flagstar, the purchase transaction must be arms-length with no identity of interest between borrower and seller or any other parties participating in the transaction, FHA's guidelines, and there is no history of flipping for the subject property. If the sales price is 20% or more higher than the seller's acquisition cost, the property flipping waiver applies only if the lender obtains certain documentation (such as complete documentation for renovations and repairs, a very solid property inspection, etc.). "While FHA's temporary property flipping exemption applies to all purchase transactions that meet these criteria, Flagstar will continue to prohibit FHA and VA financing for properties owned less than 90 days unless the seller meets one of the following Flagstar seller exemptions: seller is a relocation company or employer who acquired the subject property as the result of an employee transfer, seller is any one of the following: HUD, VA, GNMA, FNMA, FHLMC, seller is a non-profit approved to purchase and sell HUD-owned properties with re-sale restrictions, etc. (Check with Flagstar for the complete list.) And Flagstar Bank requires a second appraisal from an FHA-approved and Flagstar-eligible appraiser or a Flagstar-approved appraisal management company for all transactions having a new purchase price that is 20% or more higher than the seller's acquisition cost.

Good Luck!

Art Marine

Branch Manager

Academy Mortgage


Comments (2)

Doug Anderson
Tucker Associates Real Estate Services - Danville, CA
Bay Area Real Estate Views

Art:  Clear as mud. :<) ~Doug

Mar 05, 2010 02:21 AM
Todd Clark - Retired
eXp Realty LLC - Tigard, OR
Principle Broker Oregon

I do know many investors are confused by the rule, but many are hopeful and are still buying investment properties and hoping to get them flipped quickly. I have seen a few require them to use a preferred lender so they know it will close because of the new rules that aren't being used by everyone.

Mar 19, 2010 12:54 AM