Anti-Flipping Rule Eliminated

By Keisha Joseph

In order to accelerate foreclosure sales the FHA has eliminated a temporary waiver of their anti-flipping rule. The extension reduced will last until the end of this year, allowing home buyers to obtain FHA-insured loans to purchase foreclosed properties. The length of time the homeowner has held title is no longer a factor.

The anti-flipping rule was put in place by the Federal Housing Administration in an move to halt the artificial inflation of home prices during the housing bubble. It prohibited mortgages from being insured on homes that sellers have owned for less than 90 days.

In 2010, FHA waived the rule in order to encourage and speed up REO sales. This waiver was supposed to have expired, but due to the large number of foreclosed homes still on the market, the waiver is now scheduled to last until the end of 2012.

The anti-flipping waiver will boost the resale of foreclosed homes, according to government regulators, and aid the nation’s housing recovery. The effort is also intended to help regenerate communities that have been hard hit by foreclosures. The hardest hit neighborhoods are suffering from a glut of abandoned properties that are often used by vagrants and are stripped of their valuables.

repairing a house

The FHA is a major contributor to mortgage financing, and funds almost 40% of current U.S. mortgages.

However, the agency has placed stern conditions in place for buyers to take advantage of the anti-flipping rule to prevent what they call “predatory property flipping,” which is a process of purchasing property at a discount price and quickly reselling homes to borrowers at highly-inflated prices.

Here are some of the conditions of the anti-flipping rule waiver:

1-   All property transactions have to be directly between the buyers and the sellers. There should be no other parties in between the two.

2-    Only “forward mortgages” apply. Home Equity Conversion Mortgage (HECM) purchasing programs do not apply.

3-    If the sales price is over 20 percent of the price the seller paid for the property, the lending bank must meet certain conditions. The lender must justify this substantial increase in the property’s value.

About 42,000 homes were resold within 90 days of the seller acquiring the property since the original waiver was set in place in 2010. FHA research shows that prohibiting borrowers from using their mortgage insurance to resell flipped property makes sellers too nervous about taking offers from FHA buyers.

The effort causes REO properties to sit abandoned for longer periods of time, increasing the probability that the abandoned homes will be vandalized or beome a home for squatters.