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FHA Temporarily Waives Home Property flipping rule for One Year

FHA temporarily waives property flipping rule for one year, effective February 1st – NO more 90 day seasoning required on recently acquired properties! New purchase contracts must be dated AFTER February 1st

In a somewhat surprising announcement, FHA has announced that it is waiving the property flipping rule for one rule starting February 1, 2010, with regard to subsequent sales by purchasers.  Here is the link to the waiver:

In the waiver, FHA said it was taking this action to address the foreclosure crisis.

The waiver is limited to sales meeting the following conditions:

  • All transactions must arms-length; no identity of interest between buyer, seller or third parties

o   Ways to ensure no unacceptable arrangements include:

§  Seller holds title

§  LLCs, corporations or trusts that are serving as sellers must meet applicable State and Federal law

§  No pattern of previous flipping activity exists on property (as evidenced by multiple title transfers w/i 12 month)

§  Property marketed openly and fairly (Any sales contracts w/ “assignment of contract of sale”) may be a red flag

  • Sales w/ 20% increase over seller’s acquisition cost will only be permitted if the lender:

o   Provides supporting documentation and/or second appraisal which substantiates increase in value (I.e. renovation or rehabilitation)

o   Orders a property inspection and provides it to the purchaser. (Borrower may be charged for inspection.)

§  Waiver provides what the inspection must review and other requirements

  • Waiver is limited to forward mortgages


The waiver is effective beginning on February 1st for one year.  The waiver also includes  the language “with regard to subsequent sales by purchasers”.  While it appears this waiver applies to new sales, we will check w/ FHA to see if it can be applied to sales that have already occurred and did not meet previous exemptions.

Ø  Major FHA Changes Should Be Announced This Week

It appears very likely that FHA will be announcing its policy and underwriting changes this week.  It could be Wednesday since the FHA Commissioner is scheduled to make a speech at Washington’s Exchequer Club that day.  While we continue to believe that FHA will take the actions we outlined in our 2010 update, it is possible that they may be softened somewhat in light of current economic and mortgage market conditions as the temporary waiver of the property flipping rule demonstrates.

We also believe that there should be adequate lead time to implement the changes.  FHA remembers how much lead time lenders needed to implement previous mortgage insurance premium changes.  FHA may also have to obtain public comment on some of the changes. In this regard, on last Friday (January 15th), FHA submitted a Notice to OMB indicating that it planned to raise upfront mortgage insurance premiums.  No information is provided on the amount of the increase.  We continue to expect that it will be in the 2-2.25% range.   Below is the submission from the OMB website.

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