The Federal Housing Administration (FHA) recently announced that it is extending the temporary flip waiver that previously prohibited FHA financing for properties being resold within 90 days of previous acquisition. The flip waiver has been extended to December 31, 2014. This waiver, first implemented in 2010 to give a boost to the housing market slump, is intended to enable investors to buy and quickly rehab properties. Many folks feel the extensions make sense as a way to keep the housing market moving forward.
It is easy to understand the reasoning behind the FHA’s business decision to re-up the waiver as a way to encourage investment, stimulate the housing market, and reduce blight through home ownership. The FHA should be wary of and remain vigilant in loosening regulations because the government, to encourage lending, will have a higher volume of loans to insure. In the last two years, the FHA insured 1.2 million loans — well over $200 billion worth of mortgages each year. A higher volume of FHA loans can make careful and thorough lender monitoring difficult. In previous periods of high volume, the program was experiencing fraud schemes. As long as lenders are more stringent in their mortgage requirements, the purpose of the waiver extension will come to fruition, and hopefully fraud will be avoided. With the newer, stricter lending practices put in place, the market has changed. Previously the appeal of flipping homes was the easy availability of loans. Loans are not as easy to obtain now, which will likely discourage fraudulent activities.
The waiver is applicable to all single-family properties being resold within the 90-day period after prior acquisition, and is not limited to foreclosed properties. The waiver has certain conditions, and mortgages must meet these following requirements to be eligible for the waiver:
All transactions must be arms-length, with no interest between the buyer and the seller or any other parties participating in the sales transaction.
The seller must hold recorded title to the property.
There is no pattern of previous flipping activity as evidenced by multiple title transfers within a 12-month time frame (this is not limited to just resales).
The property was marketed openly and fairly, such as on MLS.
Additional restrictions apply if the sale price of the property is 20% or more above the seller’s acquisition cost. There are new appraisal conditions as follows:
Prospect requires a second appraisal (not charged to the borrower).
An FHA appraiser must perform an appraisal in compliance with all FHA requirements. The second appraisal must justify the value increase above the first appraisal to be eligible for the waiver.
A property inspection must be ordered and paid for by the buyer. Any health and safety issues discovered during the inspection must be satisfied and re-inspected by the home inspector after resolution.
Research is showing that in today’s market, acquiring, rehabilitating and reselling these types of properties to prospective homeowners often takes less than 90 days. With this extended waiver, the housing market will likely benefit and continue to enjoy its slow steady recovery we saw happen in 2012.
Thinking about buying San Ramon homes? Contact Mona Koussa.