Flipping Foreclosures: Will 90-Day Rule Waiver Ease Crisis?

ForeclosuresU.S. Housing officials hope to ease the impact on communities hardest hit by foreclosures with a one-year waiver of its rule against providing FHA-insured mortgages on homes resold within 90 days.
Beginning Monday, Feb. 1, its good news for flippers – investors who acquire below-market properties that often need improvements, then quickly attempt to sell for a profit. They will now have a much larger pool of potential buyers – those first-time homebuyers or others who need the backing of the Federal Housing Administration, FHA, to qualify for a mortgage.
Homes that need minor work will likely be of high interest to investors looking to flip as many properties as possible within 90 days with the help of the waiver.
The FHA said market research has shown that “acquiring, rehabilitating and reselling these properties to prospective homeowners often takes less than 90 days.”
Prohibiting the use of FHA mortgage insurance for 90 days puts sellers in a bind. If they can’t find other buyers, then they must carry costs and take the risk of vandalism by allowing a property to sit vacant.
Cities across the hardest hit states in the foreclosure crisis – California, Nevada, Florida and Arizona – have seen portions of neighborhoods dotted with unsold foreclosure properties. The impact on communities is not easing as foreclosure cases are backlogged in many counties. In Florida, a state Supreme Court judge even issued an order recently requiring mandatory foreclosure mediations to expedite cases.
“As a result of the tightened credit market, FHA-insured mortgage financing is often the only means of financing available to potential homebuyers,” said Shaun Donovan, secretary of U.S. House and Urban Development (HUD). “FHA has an unprecedented opportunity to fulfill its mission by helping many homebuyers find affordable housing while contributing to neighborhood stabilization.”
In most cases, FHA currently prohibits insuring a mortgage on a home owned by the seller for less than 90 days. The flip rule waiver will give FHA borrowers “access to a broader array of recently foreclosed properties,” according to HUD officials.
The 90-day flip rule was initiated to prevent the reselling of flipped homes at inflated prices to unsuspecting borrowers.  The FHA has set up guidelines to prevent such sales starting on Feb. 1.
The FHA waver is 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 sales 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.

Click here for more on these waiver conditions.

8 thoughts on “Flipping Foreclosures: Will 90-Day Rule Waiver Ease Crisis?

  • January 31, 2010 at 2:35 pm

    The old rule – that a purchase agreement couldn’t be signed until 90 days after the property was last sold – may have been arbitrary and, in some cases, pointless, but changing the rule won’t do much to ameliorate the “problem” of a deluge of foreclosed houses hitting the market (one person’s problem is another’s oportunity). Most renovation projects take at least 1-2 months anyway. Having renovated properties hit the market one month sooner is irrelevant to the overall issue: the huge wave of foreclosed properties has not yet passed (check back in 5 years). Any would-be investor/flipper whose cashflow is so tight that one month’s carrying costs would dissuade him/her from buying a property to re-sell probably has no business trying such an undertaking in the first place.
    Anyone who think this rule change will mean much is mistaken.

  • January 31, 2010 at 9:26 pm

    I think the purpose for lifting this requirement is to allow the bank to get the properties off of their rolls as quickly as possible. It may also benefit some investor groups that try to buy at auction, but not nearly as much for the same reason you stated Mel.

  • January 31, 2010 at 11:38 pm

    actually —— The FHA said that market research has shown that “acquiring, rehabilitating and the reselling these properties to prospective homeowners often takes less than 90 days.”

  • February 1, 2010 at 5:36 am

    sillies- its fha tired of hearing from the world as to why their flip is really exempt from 90 day. so now it will be “the lenders responsibility” to sift through 2 appraisals, a home insection the lender ordered (plus your borrower already having their inpection) to make sure the work performed by the flipper is really something more that “shining a turd…”.
    a lot of work done in an existing structure requires no licensing to complete-has no real oversight.

  • February 7, 2010 at 10:46 pm

    It’s true that the new rule may not make a huge dent in the inventory of foreclosed homes. Though, it does open up the opportunity for professional buyers to do simultaneous closings and have some impact, even if a small one.

  • February 9, 2010 at 12:58 pm

    The fact is the FHA was penalizing “real” investors that actually improve the value of a property by renovating it. Scam artists that try to fabricate equity via double-escrows and by defrauding distressed homeowners and their lenders will still have trouble. It’s simple, if you have improved the value of a property by more than 20% in 90 days or less……prove that you did something to warrant the increase. (Besides committing fraud)
    It’s back to basics time people!

  • April 29, 2010 at 1:10 am

    What would make a seller ( investor) unable to sell me a house?
    I am trying to purchase a home on the MLS that is listed for 210,000. I have offered 210,000 with 100K down and the seller tells me realtor he is unable to sell me this house, that he has to have CASH only due to this 90 day rule.
    I don’t get what is going on here, can someone enlighten me please?
    The house is worth far more than 210,000.
    He has recently purchased this home, it is not even showing in the tax appraisers web site yet his purchase.
    Is there something fishy here?

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