FHA 90-Day Flipping Rule Relaxed
The Federal Housing Administration gave a break to investors in September by relaxing the 90-day flipping rule for a period of one year. The previous rule stated that FHA would not insure a mortgage on a property if the previous sale of the property had occurred less than 91 days before the current sale. In essence, if a property was purchased on May 1, a purchaser could not secure FHA financing for the same property until 91 days after this initial sale. Since FHA financing is the largest form of financing in the Fredericksburg area real estate market today, this prevented many investor-owned properties from being sold. There were a few exemptions to this rule, but most of the exceptions did not apply to out areas market condition.
David Stevens, Assistant Secretary for Housing - Federal Housing Commissioner, sited several reasons for the temporary change in FHA policy.
1. By relaxing the 90-day rule, FHA hopes to minimize the effect of foreclosures and abandoned properties on the surrounding neighborhood. The faster a home becomes occupied, the less likely the neighborhood will become stigmatized and experience excessive decreases in property values.
2. Relaxing the 90-day rule would also help fuel the efforts of the Neighborhood Stabilization Program enacted in the summer of 2008. $3.92 billion was appropriated to local and state governments to begin rehabilitating foreclosed and abandoned properties. These grant funds can be levied to sub-contractors and developers. These properties are then to be sold to low to moderate income families as affordable housing. The most popular financing option for low to moderate income families is FHA financing. Relaxing the rule allows for third parties to take title to the properties in question, rehab the properties, and then sell them to buyers that meet the Neighborhood Stabilization Program criteria.
3. By FHA authorizing this waiver of the 90-day rule, it allows FHA and HUD to more effectively implement other stabalization programs they are backing.
However, there are still requirements for qualifying for the waiver. The property in question must have been previously foreclosed or abandoned. A non-profit or for-profit entity must have acquired the property and is now reselling it. Funding for rehab and renovations needs to come from the Neighborhood Stabilization Program and the entity must perform under agreements with state and local government agencies. The key for investors to take advantage of this rule relaxation is to become a part of the Neighborhood Stabilization Program. For more information click here.
Purchasers of REO, real estate owned or bank owned, properties are still able to enjoy a relaxation in a similar FHA rule. The purchaser of a foreclosed property can still qualify for an FHA mortgage even if the title has not seasoned under the new owner’s name for 90 days. This is good news in a state like Virginia, where we have no right of redemption on foreclosures. The Foreclosure banks can put the REO property on the market as soon as the foreclosure is recorded and the property qualifies for FHA financing. However, this waiver is set to expire May 10, 2010.
