FHA has just extended the 90 day flipping waiver days before its expiration. The existing waiver was set to expire at midnight on January 31st 2011; the extension extends the waiver till December 31st 2011.
As I wrote in my previous post last year, the 90 day flipping waiver allows investors to purchase distressed properties (foreclosures, short sales, government REOs, etc) and sell them within 90 days of purchase to borrowers that receive FHA financing.
Since the original waiver went into effect last February, over 21,000 mortgages worth over 3.6 billion have been insured by FHA. This represents a substantial amount of distressed property inventory that is no longer on the market adding to the housing woes.
The success of the waiver has caused some to question why the original rule still exists. Speculation leads many to believe the rule was created to stifle the small entrepreneur. Federal Housing Administration (FHA) Commissioner David H. Stevens adds fuel to this theory when he publically made the following statement:
“Because of past restrictions, FHA borrowers have often been shut out from buying affordable properties. This action enables our borrowers, especially first-time buyers, to take advantage of this opportunity and buy a home that has recently been rehabilitated. It will also help to move more foreclosed properties off the market and reduce the number of vacant homes in neighborhoods throughout this country.”
Apparently the benefit is recognized by FHA, but FHA continues to fail to lift the ban permanently.
The hate-hate relationship will continue once FHA realizes the benefit of quality investors in the market place. In making the announcement that all terms of the extension of the 90-day flipping waiver would remain the same, FHA further states their dislike of investors and lack of confidence in FHA underwriters and appraisers by issuing the following statement:
“The waiver contains strict conditions and guidelines to assure that predatory practices are not allowed.
To protect FHA borrowers against predatory practices of ‘flipping’ where properties are quickly resold at inflated prices to unsuspecting borrowers, this waiver continues to be limited to those sales meeting the following general conditions:
• 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.”
Pandering to both sides of the debate, both of the above quotes were in the same written statement issuing the extension of the 90-day flipping waiver.
Since writing the first post about the waiver, I have received many calls from investors regarding the program – both in how to utilize it and with the desire to work together in partnership. If you’re interested in more information, please contact me or leave a comment below. Happy investing.
Resources if you want to see the rules yourself –
From the original waiver –
- HUD’s 90 day flipping waiver
- Federal register which makes this legal
- CFR 203.37a(b)(2) – more detail
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