Foreclosure Field Report

FHA TEMPORARILY SUSPENDS 91 DAY ANTI FLIP RULE -

READ BELOW FOR DETAILS!

HUD No. 10-011
Lemar Wooley
(202) 708-0685

FOR RELEASE
Friday
January 15, 2010

HUD TAKES ACTION TO SPEED RESALE OF FORECLOSED PROPERTIES TO NEW OWNERS
Measure to help bring stability to home values and accelerate sale of vacant properties
WASHINGTON - In an effort to stabilize home values and improve conditions in communities where foreclosure activity is high, HUD Secretary Shaun Donovan today announced a temporary policy that will expand access to FHA mortgage insurance and allow for the quick resale of foreclosed properties. The announcement is part of the Obama administration commitment to addressing foreclosure. Just yesterday, Secretary Donovan announced $2 billion in Neighborhood Stabilization Program grants to local communities and nonprofit housing developers to combat the effects of vacant and abandoned homes.

“As a result of the tightened credit market, FHA-insured mortgage financing is often the only means of financing available to potential homebuyers,” said Donovan. “FHA has an unprecedented opportunity to fulfill its mission by helping many homebuyers find affordable housing while contributing to neighborhood stabilization.”

With certain exceptions, FHA currently prohibits insuring a mortgage on a home owned by the seller for less than 90 days. This temporary waiver will give FHA borrowers access to a broader array of recently foreclosed properties.

“This change in policy is temporary and will have very strict conditions and guidelines to assure that predatory practices are not allowed,” Donovan said.

In today’s market, FHA research finds that acquiring, rehabilitating and the reselling these properties to prospective homeowners often takes less than 90 days. Prohibiting the use of FHA mortgage insurance for a subsequent resale within 90 days of acquisition adversely impacts the willingness of sellers to allow contracts from potential FHA buyers because they must consider holding costs and the risk of vandalism associated with allowing a property to sit vacant over a 90-day period of time.

The policy change will permit buyers to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. This will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.

“FHA borrowers, because of the restrictions we are now lifting, have often been shut out from buying affordable properties,” said FHA Commissioner David H. Stevens. “This action will enable our borrowers, especially first-time buyers, to take advantage of this opportunity.”

The waiver will take effect on February 1, 2010 and is effective for one year, unless otherwise extended or withdrawn by the FHA Commissioner. To protect FHA borrowers against predatory practices of “flipping” where properties are quickly resold at inflated prices to unsuspecting borrowers, this waiver is 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.
Specific conditions and other details of this new temporary policy are in the text of the waiver, available on HUD’s website.

This pops up on occupied multifamily like we deal with here all the time to shake out the tire-kickers and avoid aggravating tenants too much, but this is one of the very rare times I’ve had to deal with it on a house, check out my email to a client of mine below. She wants to see a short sale house in Pacific Beach that has been on the market for over three years:

Ok, you do need to see this one…but what’s tricky about showing it is that the owner and bank/s are requiring an offer to be written on it prior to showing. I know, crazy right?! This is why it’s still available.

The difficulty in showing gives you a competitive advantage, as you will be dealing with fewer other buyers making offers. My suggestion is that we drive by, check the house out as well as the neighborhood, and in the meantime I’ll put some comparative past sales together to establish a price. Based on that we can see it if you still want to, and put together an LOI.

The takeaway here for you is that when a property is hard to see, it immediately cuts out 80% of the other buyers who can’t be bothered to make a little effort. Fewer buyers = fewer offers, which equals a LOWER SALES PRICE for you when the dust settles.