FHA 90 Day Seasoning (the Flip Rule) Waived as of Feb 1st, 2010

[Ted Harris]

YES, it's true! This waiver, which takes effect Feb 1st of 2010, is limited to those sales meeting the following conditions ....

here's the HUD link with specifics:
http://www.hud.gov/offices/hsg/sfh/waivpropflip2010.pdf

[Richard J.]

Thanks for the post Ted, that is a big plus for investors and FHA borrowers who are the needy ones blocked by the idiotic anti flip rules. Amen!
-- Dawn

[Peter Giardini]

This is great news. Too bad this didn't happen back in November... I have several clients who could have resold immediately except for this rule.

Thanx for sharing.

[Ted Harris]

Have to give Josh credit ... his post on the bulletin side is where I first saw the news. I thought this great & positive policy change worthy of forum discussion.

[Luis A.]

I have to wonder if this is some kind of wake-up call that we as investors can help solve this mess and maybe Fannie and Fredie will finally get a clue...

[G. F.]

Originally posted by qkjones:
I have to wonder if this is some kind of wake-up call that we as investors can help solve this mess and maybe Fannie and Fredie will finally get a clue...

I agree. This is an acknowledgment that investors play a big part and will be a key to the housing recovery.

With that said, I recommend that everyone should read the bulletin for themselves. My first concerns is that lenders might not adhere to the FHA ruling and stick to their in house seasoning requirement. FHA has recently subpoenaed 15 lenders with high default rate. That could scare banks and non-bank lenders to tighten up their underwriting and turn down flip transactions.

Second, I would be careful (now more than ever) how a transaction is structured (even for transactions that close 90+ days). Section 1(c) states "No pattern of previous flipping activity exists for the subject property, as evidenced by multiple title transfers within a 12-month time frame". Rehabbers that buy from wholesaler (that do A-B B-C transactions) might have a tougher time unloading a property to a retail buyer who uses a FHA mortgage. Entity flipping now seems like a better idea.

Third, I see a higher level of scrutiny for all flip transactions. Flips with more than a 20% (need at least that to make money) increase over acquisition cost will need documentation to justify the higher sale price. This is not a big deal if you have your house in order (proper paperwork from contractors, invoices, etc...).

In the end, this is a net positive. I wouldn't be surprised to seem a decrease in the absorption rate and days on market around the country. Well thats my take on it, what's yours?

[James Ward]

WOW! When I got up this morning I had many emails and a few calls about this. So, I sat and starting reading. It only got better and better from there.

Here is how I look at it:

This will allow more Short Sales to be purchased and sold by investors. While you will notice that a few items might cloud the issue, I think it will all-in-all be a great step.

It might cause a little trouble for rehabbers that buy from Short Sale investors, but I think they might be able to also get around the issues. (By showing the value indeed has changed.)

As for the section about "a pattern of flipping", it really does not constitute a pattern if a Short Sale investor purchases the property and resells the property.

As for the added value section: Well, if I purchase a property at a discounted value then sell that same property to another Buyer at market value, the added value can be shown simple by getting an appraisal.

I agree that more scrutiny will become apart of any flipped property, but as long as the values are true, no one "should" have anything to worry about.

But all-in-all, I hope this will open the doors for more transactions.

[Bill Gulley]

James, good points and logical! It's also mentioned in the wavier to justify improvements. I guess they are geeting logical, what a change! Hopefully this will filter through in the secondary and make life easier. Bill

[Ted Akers]

Good Post. I just did a similiar Blog post here and the info is flying from all directions. Good point by qkjones - when will FNMA and Freddie wake up? Also, great points by James. They will look at flipping during the previous 12 months, which by the nature of it being a recent foreclosure is an unlikely scenario but one you do want to check by asking your Title Company for a Chain of Title early in the process.

[Nick Reuter]

These are the "cliff notes" i pulled out of it:

1. Effective 2/1/2010
2. Transactions must be arms length – no inappropriate collusion and no identity of interest between the buyer and seller or other parties. This can be determined using the following:
1. Seller holds title to the property
2. LLC’s, Corporations, or Trusts which are sellers are operating within the law
3. No pattern of previous flipping exists for the same property within a 12-month time frame
4. Property was marketed openly and fairly via MLS, auction, FSBO (for sale by owner) or developer marketing
3. 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:
1. Justifies the increase in value by retaining loan file supporting documentation and / or a second appraisal that verifies the seller has completed sufficient renovation / repair / renhabilitation work
2. Orders a property inspection and provides inspection to the purchaser prior to closing. FHA approved inspectors are not required. Inspection must include, at a minimum:
1. Structural inspection, including roof, foundation, floors, ceiling, walls, and roof
2. Exterior, including siding, doors, windows, decks, balconies, walkways, an driveways
3. Plumbing, electrical, heating, and air conditioning systems
4. Insulation and ventilation systems, including fireplaces and fuel burning appliances
4. Waiver is limited to forward mortgages, and does not apply to Home Equity Conversion Mortgage (HECM) for Purchase program

[Scott R.]

yay! yea i got the email form REItips.com this is great news. the 20% flip thing kinda gets me.

i mean if there were small things like paint, carpet, etc. its not extensive rehab. The investors i work work negotiate their own deals in CA and they dont need a ton of rehab, then they resell. so hope it works out!

here is an article on it

http://www.nctimes.com/business/article_d743162e-03d5-5ffd-af48-24717bd099f2.html

[Scott R.]

oh and another thing. if you cant sell a home for more than 20% (unless renovations.) of what you paid. is it talking you cant PROFIT more than 20% or you cant SELL for more than 20%? im reading SELL but im hoping im missing something.

[J Scott]

Originally posted by Dwight Droze:
oh and another thing. if you cant sell a home for more than 20% (unless renovations.) of what you paid. is it talking you cant PROFIT more than 20% or you cant SELL for more than 20%? im reading SELL but im hoping im missing something.

If you sell the house for more than 20% above what you paid for it (regardless of whether you're flipping it with no renovations or whether you did a full remodel), you will fall under heavier scrutiny by the underwriter.

I imagine this will generally consist of a second appraisal (as current FHA sales above 200% of the previous purchase price between 90-180 do), and may also require some documentation of the renovations/costs performed.

[Buddy Chou]

I am still having problems with lenders who are following the old 90 day rule. Although I show them a copy of the signed waiver, they are waiting for the FHA mortgagee letter to come out. No one knows when that will happen. Does anyone know of a lender who does business in Wisconsin that will not require the 90 seasoning?