FHA Extends its Waiver of the Anti-Flipping Rule

Thanks to mortgage consultant Mitch Wilcox for the following update:

The Federal Housing Administration has extended FHA’s temporary waiver of the agency’s “anti-flipping” rule.’ As a result, lenders will continue to allow the waiver for the 30 Year Fixed FHA program.

With certain exceptions, FHA regulations prohibit insuring a mortgage on a home owned by the seller for less than 90 days. Early last year, FHA temporarily waived this regulation through Jan. 31, 2011.

Earlier this week, FHA posted a notice extending the waiver through the remainder of 2011. This action 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The extension is effective through Dec. 31, unless otherwise extended or withdrawn by FHA. All other terms of the waiver will remain the same. The waiver contains strict conditions and guidelines to assure that predatory practices are not allowed.

To protect FHA borrowers against predatory practices of “flipping” (where properties are quickly resold at inflated prices to unsuspecting borrowers), this waiver continues to be limited to those sales meeting the following general conditions:

  • All transactions must be arms-length (no family-to-family sales, for example), with no identity of interest between the buyer and seller or other parties participating in the sale.
  • In cases where the sales price of the property is 20 percent or more above the seller’s acquisition cost, a property inspection report is required.
  • In cases where the sales price of the property is 50 percent or more above the seller’s acquisition cost, a property inspection report and second appraisal is required.

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

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