Sacramento Real Estate Views

HUD Lifts “Flip Rule”….For Now

90 “Flip Rule” Gets 1 Year Moratorium

In an effort to protect home buyers against investors buying substantially below market and selling a home at inflated prices, HUD instituted what’s known as the “flip rule” preventing federally insured (FHA) financing on any home with 90 days of the last sale date.

Supposedly, this was to protect “unsuspecting” home buyers from paying more than the home was worth.

While it is highly unlikely that this “flip rule” did anything more than delay getting homes sold in a more expedient manner, it has been given it’s own year long moratorium unless the FHA commissioner extends it out further.

There are so many other safeguards in place to protect home buyers, like appraisers who will subvert values out of fear as they have been wrongly accused, in part, of creating the housing mess, that the flip rule was completely unnecessary and prolonged the time that a home sat vacant costing sellers money in the process.

While FHA home loans weren’t the only loans available, private lenders also followed the HUD guidelines making it difficult for investors to purchase property, repair and resell within 90 days of purchase.  This is part of the reason, among others, that all cash buyers are preferred over financed real estate transactions.

Lenders are knee jerk mode.  Getting a loan is tougher than it’s ever been so this is a welcome sign for buyers and sellers.

Moratorium Guidelines

Unless the FHA commissioner deems it necessary to withdraw the moratorium and reinstitute the policy, buyers will now be able to get FHA loans on homes that have sold within that 90 period as long as the following guidelines are met:

1)  All transactions must be “arms length” with no identity of interest between buyer, seller or other principals.

2)  In cases where the sale price is 20% or more above the sellers acquisition cost, the waiver of the rule will only apply if the lender meets specific conditions. (possibly a second appraisal and property inspection)

3)  The waiver of the rule is limited to forward mortgages and doesn’t apply to Home Equity Conversion Mortgages for purchase program.

For the full text of the press release, click here or click here.  All the details are there.  Essentially, this is a step forward to easing the loan process but we still have a long way to go to make it simpler.

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Tags: investment property sacramento

This entry was posted on Monday, January 18th, 2010 at 8:00 pm and is filed under Real Estate Market Commentary. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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