FHA Mortgage Guide

The FHA has announced a change in its anti-flipping program to speed the sale of foreclosed homes.

Under HUD’s anti-flipping rule, borrowers cannot generally get an FHA loan if a property has been re-sold within the past 90 days. However, there are exceptions in such cases as when a property is sold by an estate, a community housing organization or a governmental agency.

Now HUD is moving to expand the exception list by dropping the rule when a home is being sold by a lender after foreclosure. As HUD explains:

“FHA finds that in addressing specific cases related to the mortgage crisis, waiving the regulations so that properties acquired by foreclosure by mortgagees that are not state- or federally-chartered would allow the properties to become eligible for FHA-insured financing during the 90-day period. This would reduce holding costs to mortgage lenders. An expansion of the exemption will result in a lessening of the likelihood of property value deterioration to adjoining and near-by properties as well as to the properties acquired by foreclosure.”

This is an idea which makes a lot of sense. The purpose of the anti-flipping rule is to eliminate the use of FHA loans to underwrite illegally-flipped homes. Since most illegal flippers must quickly re-sell homes to re-capture their cash, the 90-day standard is a major problem for them.

Unfortunately, the anti-flipping rule also hits legal and lawful investors who simply want to buy and quickly re-sell homes. This is a situation where no one has figured out a way to instantly separate the lawful from the unlawful, thus the need for a general ban.

HUD’s news release is below:

FHA EXTENDS FINANCING FOR IMMEDIATE PURCHASE OF FORECLOSED HOMES
Measure seen to bring stability to home values and accelerate sale of vacant properties

WASHINGTON - In an effort to stabilize declining home values in certain neighborhoods, the Bush Administration today announced a temporary policy that will extend government-backed mortgage insurance and allow for the immediate sale of vacant foreclosed properties.

For one year, the Federal Housing Administration (FHA) will insure foreclosed properties marketed and sold by property disposition firms on behalf of lenders. The properties, which must purchased by owner-occupants, will no longer be subject to the customary 90-day waiting period.

“A glut of foreclosed and abandoned homes harms neighborhoods, frustrates homebuyers and delays a community’s recovery,” said Brian D. Montgomery, Assistant Secretary of Housing-Federal Housing Commissioner. “The action we take today will allow homebuyers to purchase these homes in much greater numbers and ease the excess supply of unsold homes in neighborhoods across the country.”

FHA’s new temporary policy will help stabilize neighborhoods experiencing high rates of foreclosure by reducing the inventory of unsold properties. Many foreclosed properties remain vacant for months, inviting vandalism and reducing values of surrounding homes. To address that sizeable inventory, lenders have hired companies that specialize in the marketing and disposition of foreclosed homes. It’s reasonable and appropriate that these firms have the ability to sell the properties to borrowers using FHA financing.

With certain exceptions, FHA currently prohibits insuring a mortgage on a home owned by the seller for less than 90 days. This prohibition is intended to prevent property “flipping,” a predatory practice that strips a home of its equity before being quickly resold at an inflated price to an unsuspecting buyer. FHA’s new policy will permit the immediate sale of foreclosed properties to legitimate borrowers wishing to use FHA-insured financing.

Check out these FHA resources for more information

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