90-Day Flipping Rule.

The Dept. of Housing and Urban Development (HUD) announced that they will eliminate for one year the Federal Housing Administration (FHA) 90-day anti-flipping rule. With certain exceptions, FHA currently prohibits insuring a mortgage on a home owned by the seller for less than 90 days. This temporary waiver will give FHA borrowers access to a broader array of recently foreclosed properties.


That rule already has been waived for certain transactions, including REOs. Beginning Feb. 1, 2010 buyers may use FHA-insured financing to purchase properties resold through private developers and investors.


This one-year waiver will give FHA buyers access to a broader array of recently foreclosed properties. Under the temporary waiver, all transactions must be made at arm's-length and may require additional documentation of improvements and justification of certain price increases. Additional documentation may include a second appraisal and a property inspection ordered by the lender. The reexamination of the 90-day anti-flipping rule was passed as an action item during C.A.R.'s board of directors meetings in October.


The policy change will permit buyers to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. This will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.


The waiver will take effect on February 1, 2010 and is effective for one year, unless otherwise extended or withdrawn by the FHA Commissioner. To protect FHA borrowers against predatory practices of "flipping" where properties are quickly resold at inflated prices to unsuspecting borrowers, this waiver is limited to those sales meeting the following general 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 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.


. The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.


Specific conditions and other details of this new temporary policy are in the text of the waiver, available on HUD's website.


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