FHA Extends Waiver of Anti-Flipping Regulations – Why it doesn’t matter in the real world

FHA Extends Waiver of Anti-Flipping Guidelines Through 2012.

Minneapolis, MN: In an effort to continue stabilizing home values and improve conditions in communities experiencing high foreclosure activity, the Federal Housing Administration (FHA) will extend FHA’s temporary waiver of the anti-flipping regulations.

With certain exceptions, FHA regulations prohibit insuring a mortgage on a home owned by the seller for less than 90 days.  In 2010, FHA temporarily waived this regulation through January 31, 2011, and later extended that waiver through the remainder of 2011.  The new extension will permit buyers to continue to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. It will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.

The extension is effective through December 31, 2012, unless otherwise extended or withdrawn by FHA.  All other terms of the existing Waiver will remain the same.  The waiver contains strict conditions and guidelines to prevent the predatory practice of property flipping, in which properties are quickly resold at inflated prices to unsuspecting borrowers.

Sounds great, BUT too bad it doesn’t really matter in the real world because of the difficulty in meeting the “strict guidelines” and lender overlays, MOST FHA lenders DO NOT offer this exception.

Remember, FHA does not lend money, lenders do. FHA only insures loans lender make. Regardless of what FHA says they will “allow”, it is still up to the individual FHA lenders to decide their ultimate underwriting guidelines. Most FHA lenders find this exception too difficult to meet the strict guidelines, and too risky, so they simply WILL NOT ALLOW any FHA transaction less than 90-days.

While we are talking FHA here, lender overlays also are common on Fannie Mae and Freddie Mac programs.

The Waiver continues to be limited to sales meeting the following conditions:

  • All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.
  • In all cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the Waiver will only apply if the lender meets specific conditions and documents the justification for the increase in value

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