FHA Extends “Anti-Flipping Waiver”

February 2011Newsletters In the Zone

In an effort to continue stabilizing home values and improve conditions in communities experiencing high foreclosure activity, the Federal Housing Administration (FHA) extended its temporary waiver of the agency’s “anti-flipping rule.” The extension is intended to accelerate the resale of foreclosed-upon homes in neighborhoods struggling to overcome possible property abandonment and blight.

With certain exceptions, FHA regulations prohibit insuring a mortgage on a home owned by the seller for less than 90 days. Early last year, FHA temporarily waived this regulation through Jan. 31, 2011. On Jan. 28, the FHA posted a notice extending this waiver through the remainder of 2011.

This action will permit buyers to continue to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties or properties resold through private sales. It will allow homes to resell as quickly as possible, helping to stabilize real estate prices and revitalize neighborhoods and communities.

Since the original waiver went into effect last February, FHA has insured more than 21,000 mortgages worth more than $3.6 billion on properties resold within 90 days of acquisition.

FHA research finds that in today’s market, acquiring, rehabilitating and 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 during a 90-day period of time.

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 sale 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 more information, please contact Lauren W. Taylor at 215.918.3625 or [email protected].