Earlier this week, I pointed out that FHA had waived their 90-day title seasoning requirements for new FHA loans on properties that had been foreclosed.
Many people took this to mean that it’s open season on flipping properties. Unfortunately, that’s not true, and I have to admit culpability for being less than perfectly clear.
This waiver applies only to properties that have already been foreclosed. So it does not apply to properties facing foreclosure, or to properties you’d like to short sale. It applies only to properties that have already completed the foreclosure process.
Additionally, there is some debate about whether the waiver applies to real estate investors at all, since the text appears to aim the waiver at “subsidiaries and vendors” of mortgage lenders. I think that this does not preclude application of the waiver to real estate investors, since it’s perfectly reasonable to classify a real estate investor as a “vendor” (since the word “vendor” simply means “seller”). But to be fair, the jury is still out on this one.
If you’re an FHA lender with first-hand knowledge of this issue, I’d love to hear from you.
Based on some recent clarifications of this issue, it appears that this issue may not effect real estate investors at all, with one exception: If you are able to establish yourself or your company as a “vendor” for a lender that is attempting to dispose of foreclosed property, then the waiver would apply to you. Otherwise, it’s business as usual.
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good thoughts
Hey Bryan,
Being a former mortgage broker, I called some of my Account Executives contacts at some large lenders and they told me that the waiver is only for banks or lenders that have foreclosed and took back ownership of a house and is now attempting to liquidate their asset. Once an individual or investor takes title, then the 90 day rule applies. Plus, individual institutional lenders are choosing not to change their guidelines.
So, the only way, I see, to take advantage of this rule change is if you buy the note in default at a deep discount (become the lender)and foreclose on the property and then you can sell to an end buyer without worrying about the 90 day seasoning of title rule. That is too much work for me
Bryan,
Here’s a portion of an email message from HUD
————– Forwarded Message: ————–
From: **********
To: **********
Subject: FHA Lender Training comes to Orange, CA, & Temporary Property Flipping Waiver
Date: Thu, 19 Jun 2008 23:43:15 +0000
Temporary Property Flipping Waiver:
The temporary waiver of the property flipping rule will permit lenders to more easily sell properties acquired as a result of foreclosure to homebuyers who use FHA financing. Both lenders and the property disposition firms they hire (or with whom they are affiliated) are now exempt from the 90-day lock-out period that once prevented homebuyers from using FHA financing to purchase properties that were owned by an individual/entity that held the property for less than 90 days. Under the new waiver, homes that were foreclosed on and are being sold by the mortgage holder or on its behalf may be purchased by FHA borrowers without regard for the 90-day seasoning period. To prevent future flipping of any properties purchased through the foreclosure sales, the subsequent sales of the properties will continue to be subject to the standard regulatory requirements - lockout for the first 90 days and two appraisals required to justify any increase in value of 100% or more for sales that occur within 90 to 180 days.
The waiver is effective for all FHA mortgage insurance endorsement requests on or after June 9, 2008 and expires for all loans for which the sales agreements were signed by the seller and buyer prior to June 8, 2009. Again, the exemption applies only to the initial sale of a foreclosed property and does not extend to a subsequent sale of that property.
FHAConnection is being modified to permit lenders to enter specific data about the waiver eligibility on foreclosed properties, on the Appraisal Logging screen. The systems modifications will be completed by early next week. Although lenders will not be required to submit documentation requesting a waiver on the foreclosure transaction to the applicable Homeownership Center prior to entry of appraisal logging data, lenders must include this documentation in the endorsement file. Further instructions are forthcoming about the system modifications and will be posted on the FHAC Message Board and this listserv.
To read the press release please visit: http://www.hud.gov/news/release.cfm?content=pr08-082.cfm
To read the waiver document please visit: http://www.fha.gov and click on the “property flipping waiver” link or link directly to:
http://portal.hud.gov/pls/portal/docs/PAGE/FHA_HOME/PRESS/PROPERTY_FLIPPING_WAIVER/PROPERTY%20FLIPPING%20WAIVER%20REQUEST.PDF
Janet,
That email states it as more clearly than anywhere else I’ve seen. Would you mind forwarding me a copy of that exact email? I’d like to re-post it on my blog, with your permission.
thanks for posting that — and thanks, Bryan, for posting your follow up here.
…jp
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