If you’re a prospective buyer who’s been eyeing a newly rehabbed home, it just got easier for  you to buy it, thanks to the Department of Housing and Urban Development (HUD) decision to waive its 90 days “no flip” rule on recently foreclosed properties.  Effective February 1, 2010, investors who acquire foreclosed properties at below-market value no longer had to wait the customary 90 days before reselling them. That means buyers using Federal Housing Administration (FHA)-insured financing now have access to a broader array of recently foreclosed properties, according to HUD officials. HUD says the action-in effect for one year-will especially help first-time buyers, who often have been shut out from buying affordable properties because of the 90-day waiting period. 

HUD’s move is an effort to stabilize home values and improve conditions in communities where foreclosure activity is high.  “As a result of the tightened credit market, FHA-insured mortgage financing is often the only means of financing available to potential home buyers,” said HUD Secretary Shaun Donovan in a statement.  “FHA has an unprecedented opportunity to fulfill its mission by helping many home buyers find affordable housing while contributing to neighborhood stabilization.” HUD found that foreclosed homes that sit vacant more than 90 days are more prone to vandalism and adversely affect property values.  The 90-day waiting period was put in place to protect FHA borrowers against predatory practices of flipping where properties were quickly resold at inflated prices to unsuspecting borrowers.

While HUD’s temporary change in policy is welcomed, the impact of the flipping waiver remains to be determined, according to Eric Rotner, a loan Officer With Bank of Commerce Mortgage in San Ramon.  “While this move will benefit buyers, the overwhelming majority of sellers will select a cash buyer or one using conventional financing over a comparable offer using FHA financing.  This is primarily due to the complexities associated with FHA loan guidelines and the general stigma surrounding FHA loans.”  Moreover, it is a lender’s discretion whether to honor the waiver policy.

THE FINE PRINT

The FHA waiver is limited to those sales meeting the following general conditions:

All transactions must be arm’s-length, meaning there can be 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, additional documentation is required to justify the price increase.

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

Article by Lotus W. Lou