FHA Suspends Flipping Rule? Not So Fast, Sparky…
By JP Moses on Jun 16, 2008 in Real Estate Investing News
Did you hear about the new FHA waiver suspending the 90-day no-flip rule?
I first caught wind of it Friday through a forum post, then again on Cory’s blog and on CNN.
The CNN article says…
“The Bush administration is temporarily suspending a 5-year-old rule intended to deter property flippers, as part of an effort to help speed the sale of foreclosed properties. For one year, the Federal Housing Administration will no longer impose a 90-day waiting period before foreclosed properties can be sold to receive government-backed loans.”
Break Out the Bubbly! Let the People Rejoice!…Right?
Don’t uncork that bottle just yet, my friend.
Yes, at first glance a lot of investors (including me) saw this as an incredible break for investors who, since 2003, have had to deal with a “90 days of ownership seasoning” requirement before our properties could be sold to buyers using FHA financing.
Sadly this is still the case.
Whether we like it or not (I know I don’t) the 90-day seasoning policy was place in 2003 to deter what the FHA in it’s infinite wisdom determined to be property “flipping” schemes.
Apparently this new “waiver” doesn’t phase this limitation at all.
If you carefully review the PDF of the actual waiver from HUD’s website, you’ll notice this little tidbit…
So What DOES This Mean?
Simply this…
- FHA financing is NOW available to borrowers purchasing properties owned less than 90 days that were acquired by foreclosure by mortgagees (i.e. lenders)
- This also includes any subsidiary of the lender or vendors used to market and sell property.
- This waiver applies whether or not the mortgagee is state-or federally-chartered (which was previously a restriction).
The Bottom Line for Investors…
Sorry, but nothing changes for us, because…
- You’re not a “mortgagee” unless you’re the one who actually foreclosed on the property.
- You’re not a “vendor” unless you actually have a contract of some sort in place with one of the lenders.
There is no verbiage in the waiver that states or even suggests it applies unless you’re one of the above.
Business as usual, folks. Move along…
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1 Comment(s)
By JP Moses (51 comments) on Jun 18, 2008 | Reply
@Gary Boomershine - Some really excellent points in there, Gary. And never let it be said that you’re not a man of words and action.
It’s not that I don’t think the FHA waiver will have any impact at all in the REI community. But it won’t have the effect many of us thought it did initially. If someone can get clarification on exactly what kind of “vendor” the waiver might be referring to, then maybe we can figure out if/how an investor might put himself in that role. I’d appreciate anyone else’s insight on that particularly.
It also seems to me that in order for a mortgagee (lender) to be able to benefit from this waiver, they’re going to have to look at rehabbing many of the REOs in their inventory. Otherwise most of them won’t meet FHA’s standards for property condition, so the waiver would be useless. So it’ll be interesting to see how/if this effects the way banks deal with their inventory at all.
Thanks again for your insightful feedback. Anyone else?