Richard's Real Estate Thoughts: January 2011

FHA announced it will extend the property flipping waiver until December 31, 2011, This flipping waiver had previously been in force through January 31,2011.

The waiver basically allows properties purchased within the last 90 days to be sold with FHA financing, with a 20% cap on price increase.

In the announcement, FHA Commissioner David Stevens said, "As I noted when we first announced this policy change early last year, because of the tightened credit market, FHA-insured mortgage financing is often the only means of financing available to potential homebuyers."

"Today I can report that this policy change has been effective.  Since the original waiver went into effect on last February, FHA has insured more than 21,000 mortgages worth over $3.6 billion on properties resold within 90 days of acquisition."

The flipping rules are in place to prevent properties from being resold with nominal improvements to unsuspecting buyers at above market, "inflated" prices. It is basically a protection against predatory home selling practices.

The existing flipping policy prohibits sales within 90 days of the original purchase, and places limits on property sales that take place between 90 and 360 days of the original purchase.

The property flipping waiver that was announced in January 2010, and is now extended, opens the market to resales within the first 90 days, with the following restrictions:

• 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

This is generally good news, and FHA indicates that the waiver has helped increase home sales. Typically though the 20% above acquisition cost limit is still restrictive for most resales, as the low number of 21,000 resales indicates.

With current tightened lending and appraisal guidelines in place, I suspect that the HUD flipping rules are not needed to prevent resales at "inflated" prices.

Anyway the waiver extension is good news.  

Here is the link to the flipping waiver notice.

Here is the link to the FHA press release of the waiver extension.