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FHA Flips Permitted Throughout 2011

From David Mikkelson:

The Federal Housing Administration has extended FHA's temporary waiver of the agency's 'anti-flipping rule.'  

With certain exceptions, FHA regulations prohibit insuring a mortgage on a home owned by the seller for less than 90 days.  Early last year, FHA temporarily waived this regulation through January 31, 2011.  FHA today posted a notice extending this waiver through the remainder of 2011.  This action will permit buyers to continue to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. It will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.

The extension announced today is effective through December 31, 2011, unless otherwise extended or withdrawn by FHA.  All other terms of the waiver will remain the same. The waiver contains strict conditions and guidelines to assure that predatory practices are not allowed.

To protect FHA borrowers against predatory practices of "flipping" where properties are quickly resold at inflated prices to unsuspecting borrowers, this waiver continues to be 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.

Rental Income For Mortgage Qualification

One of the major changes to conventional loan guidelines is that rental income, for an existing property, won't be used unless:

• The borrower has a two-year history of property management as evidenced by tax returns
• The borrower must have 30% equity in the "departing" property.

Why won't lenders allow rental income for loan qualification?  Gina Benson from AMX Loans answers this question:

The investors are becoming increasingly strict on using departing rents. Wells, as an example,  just came out with a new guideline that the borrower has to have 30% equity, plus a two year history of managing rental property as demonstrated by their most recent two years 1040's. 
 
The strategic foreclosures have increased on the departing residences and the statistics are finally flowing back to the investors.
 
Our closed loan history shows that 50% of these types of loans the departing residence immediately go into default or listed for short sale within the first 30 days of closing on the new loan. Another 25% within the first 6 months.