Loan Modification

FHA anti-flipping rule: will it come back?

By Peter G. Miller

As FHALoanPros reported on January 10th, we expected that the HUD would continue to waive it’s FHA anti-flipping rule and now the waiver has officially been continued until December 31, 2011.

While the continued waiver is not surprising, the year-end deadline is.

Under the anti-flipping rule, FHA loans were not allowed for any property that had been sold within the past 90 days. If the property had been sold within the past 180 days then HUD reserved the right to ask for a second appraisal and if the property had been sold within the past year then HUD — under the rule — had the right to ask for additional verifications.

The purpose of such FHA loan guidelines was to prevent the use of FHA financing by illegal flippers — individuals and groups that buy properties and then extract an artificially higher value through such steps as appraisal fraud, underwriting fraud, mortgage fraud, property tax evasion, etc. By refusing to finance quickie re-sales HUD was striking directly at illegal flippers because such individuals want to have the fastest possible sales to maximize profits.

But there are also legitimate investors and rehabbers who also want to buy and quickly re-sell propertines. Unfortunately the rule also hurt them.

Over time HUD amended its rule so that it could be waived in the case of estates, sales by state and community groups, lenders with foreclosed properties and for any home in a presidentially-declared disaster area. Finally, in 2009, HUD simply waived the rule through February 1st of this year.

FHA Commissioner David H. Stevens says that “since the original waiver went into effect on last February, FHA has insured more than 21,000 mortgages worth over $3.6 billion on properties resold within 90 days of acquisition.”

Now, amazingly, the FHA actually wants investors to rehab and quickly sell properties.

HUD explains that “as a result of the high boreclosures that have been taking place across the nation. FHA, through rue regulatory waiver — encourages investors that specialize in acquiring and renovating properties to renovate foreclosed and abandoned homes with the oblective of increasing the availability of affordable homes for first-time arid other purchasers and helping to stabilize real estate prices as well as neighborhoods and communities where foreclosure activity has been high.”

But we don’t need investors only now. Investors should be part of every market whether foreclosure activity is high or low precisely because investors help “stabilize real estate prices as well as neighborhoods.”

There is nothing in the future which suggests that the need for investors will decline, and certainly nothing which says our need for investors will end on December 31st.

So, a modest suggest; Let’s forget the waiver and just drop the rule. Some 21,000 properties were improved with the waiver, imagine how many might be improved if the possibility of a waiver return was eliminated.

As to illegal flippers, start changing more and more of them with mortgage fraud.

Full post as published by FHA Mortgage Guide on January 31, 2011 (boomark / email).