FHA Extends Anti-Flipping Waiver
In November 2012 HUD and the Federal Housing Administration (FHA) extended the waiver relative to its anti-flipping regulations, this extension will be in force until December 31,2014.
The intended purpose of the extension is to “continue stabilizing home values and improve conditions in communities experiencing high foreclosure activity.” FHA Commissioner Carol J. Galante extended the waiver, which was originally considered “temporary,” though it has since been extended several times.
The effective date of the original FHA waiver to the anti-flipping regulation was January 2010 for all sales contracts executed on or after February 1, 2010, though official public notice was not issued until May 21, 2010 in the Federal Register.
With the latest waiver announcement the FHA once again will put in limbo its regulation that prohibits FHA financing to purchase any single-family property that is to be resold within 90 days of the previous acquisition. Prior to the original waiver date of February 1, 2010 “a mortgage was not eligible for FHA insurance if the contract of sale for the purchase of the property that secured the mortgage was executed within 90 days of the prior acquisition by the seller, and the seller did not come under any of the exemptions to this 90-day period specified in the regulation.”
In effect the FHA simply nullified any potential loan by refusing to issue government backed insurance on the loan transaction, thus making the risk potential on the loan unacceptable to a lender.
The purpose of the original regulation was to stop what HUD and the FHA had determined was fraudulent “property flipping” of home sales often using FHA loans. According to their definition, flipping was the resale of a home that was recently purchased by the seller and then quickly “resold for a considerable profit with an artificially inflated value, often as the result of a lender’s collusion with an appraiser.”
The FHA further determined that most flipping occurred within just a few days of acquisition and with only minor cosmetic improvements. This practice drove up the price of homes in communities often causing a market environment that shut out many hopeful buyers from purchasing affordable homes. Essentially flipping created a market environment that was counter to the purpose of FHA lending.
However, the purpose of the waiver is to encourage serious investors to acquire foreclosed or abandoned homes in order to renovate the properties for sale to first-time or other buyers, but at affordable prices. The waiver applies to all single-family properties that are to be resold within a 90- day period after the original acquisition.
The waiver is not limited to foreclosed properties, but it is subject to certain conditions, and the loans must meet these conditions to be eligible for the waiver.
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