Well, the 90 day Anti-Flipping rule went into effect but according to Marcia Geffner of Bankrate.com lenders may have a different interpretation of the rule...
Homebuyers who need a loan insured by
the Federal Housing Administration, or FHA, may be able to buy a recent foreclosure house now that the FHA
has waived its so-called "anti-flipping" rule. This rule banned the
use of an FHA-insured mortgage to buy a home that was being resold within 90
days of purchase.
The rule was enacted to reduce mortgage
fraud. But over time, the effect was to hinder buyers who needed an FHA-insured loan and wanted to buy a home that had been bought at a foreclosure
auction and fixed up by an investor for resale. The waiver should now allow
these borrowers a better chance to buy those homes.
"FHA borrowers, because of the
restrictions we are now lifting, have often been shut out from buying
affordable properties," FHA Commissioner David H. Stevens said in a
statement. "This action will enable our borrowers, especially first-time
buyers, to take advantage of this opportunity."
Will lenders relax anti-flipping rules?
The waiver
is a positive step, but its effects may be limited, according to Peter
Thompson, a senior mortgage consultant at Wintrust Mortgage in Downers Grove,
Ill.
"The FHA has relaxed the rule, but
we have to look at how lenders are interpreting it," he says.
Wells Fargo has introduced its
"first phase" of the waiver, which will allow qualified borrowers to
use an FHA loan within 90 days of the seller's acquisition of the property if
the purchase price is not more than 20 percent greater than the seller's acquisition
cost.
Bank of America hasn't made a decision
about how to handle the waiver. A representative for J.P. Morgan Chase said the
bank "appreciates any policy that allows quicker sales" of bank-owned
real estate, but that the waiver "will not have a major impact."
Anti-flipping waiver has some restrictions
Buyers
should be aware of the FHA's limits on the anti-flipping rule waiver, which are
as follows:
- The home sale must be at arm's
length, which means there can be no close business or personal
relationship between the seller and buyer.
- If the price that the buyer
agrees to pay for the home is more than 20 percent higher than the price
the investor paid to purchase it, the sale will be subject to extra
scrutiny to ensure that the value hasn't been inflated.
- The Home Equity Conversion
Mortgage for Purchase program is excluded from the waiver. This program
allows older homeowners to combine a reverse mortgage and a home purchase.
- The 90-day time period might be
shorter or longer than 90 calendar days due to the way the start and end
dates are determined. The start date occurs when the sale is recorded. The
end date occurs when the purchase contract is signed.
- The waiver began Feb. 1, 2010,
and will last one year, unless the FHA extends or withdraws it. The waiver
can be withdrawn if there is a significant increase in defaults or
mortgage insurance claims on FHA loans that were used to buy flipped
homes.
Homebuyers typically don't encounter
the anti-flipping rule until they've found a house they want to purchase and
been told they can't use an FHA loan unless the investor has owned the home for
at least 90 days. Buyers who are concerned about this pitfall should ask when
the investor purchased the home, what the sale price was and whether FHA
financing will be allowed.
Waiver not expected to result in fraud
The
anti-flipping rule originally was imposed in 2003 to reduce mortgage fraud that
involved quick resales of properties purchased through straw buyers and had artificially
inflated appraisals.
The FHA granted a long list of
exemptions from the rule. For example, homes sold by most government agencies
and nonprofit organizations were exempt. That meant buyers who wanted to use an
FHA loan could purchase those homes, but not other homes that had been bought
and repaired by private investors, within 90 days. The waiver will level that
playing field.
Skeptics might wonder whether the
waiver could set off a rise in loan fraud. Thompson suggests that's unlikely
because the loan environment has changed since the anti-flipping rule was
enacted. One change is that drive-by appraisals, which were quite common, have
given way to stricter appraisals rules and that lenders now examine appraisals
"with a fine-toothed comb," he says. That should reduce the risk of
fraud.
The bottom line on property flipping
and fraud, according to a letter officials at the California Association of
Realtors sent to the FHA in November 2009, is that "a property resold with
90 days by a legitimate investor is no longer synonymous with fraudulent or
predatory practices."
Homebuyers who need an FHA loan should
be able to take it to the bank.