FHA 90-Day Rule Put On Hold

by Peter G. Miller
January 18th, 2010

In an effort to stimulate home sales, HUD has announced that as of February 1st it will suspend its 90-day anti-flipping rule. This should have the effect of making FHA loans more easy to obtain for recently refurbished homes.

With certain exceptions, says HUD, “the 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.”

Why The Anti-Flipping Rule

While there is some merit to the anti-flipping rule, it also represents some problems. For instance, a legitimate firm may be able to fix up a home for re-sale in less than 90 days — just look at how quickly new homes are built. HUD now recognizes this reality.

“This change in policy is temporary and will have very strict conditions and guidelines to assure that predatory practices are not allowed,” says HUD Secretary Shaun Donovan.

“In today’s market, FHA research finds that acquiring, rehabilitating and the reselling these properties to prospective homeowners often takes less than 90 days. Prohibiting the use of FHA mortgage insurance for a subsequent resale within 90 days of acquisition adversely impacts the willingness of sellers to allow contracts from potential FHA buyers because they must consider holding costs and the risk of vandalism associated with allowing a property to sit vacant over a 90-day period of time.”

Past Changes

The reality is that HUD has been backing away from the anti-flipping rule for some time.

As we reported in 2008:

“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.’”


In a note to lenders, HUD says the waiver of the 90-day rule will still require that certain conditions must be met:

____ 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.

For specifics regarding the new rule, please speak with lenders.

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This entry was posted on Monday, January 18th, 2010 at 7:32 am and is filed under . You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.

One Response to “FHA 90-Day Rule Put On Hold”

  1. Donald Tucker Says:

    I see a problem with the 20%. If I buy a house for 50,000 and put 50,000 of rehab money into the house. I would be selling over the 20% of acquisition cost. The rule would help if it would read total cost of purchase and rehab cost not to exceed 20%. After all the rule is for the purpose of companies who buy foreclosures and rehab to sell.

    What are lenders specific conditions?

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