Mortgage lenders continue to be overwhelmed with a wide array of important compliance and credit-related policy and procedural changes that are being implemented by VA, FHA, USDA and the GSEs – on a regular basis.
Fannie Mae’s revised Rep & Warrant framework and announcement of a roll out of Collateral Underwriter in January, USDA’s implementation of a new automated Lender Loan Closing system, FHA’s revised underwriting criteria for Reverse Mortgages, the CFPB’s recent revisions to the ATR and QM rule are just some examples of these recent changes.
In light of all these important changes, it is not surprising that many lenders are unaware that HUD/FHA’s Property Flipping Waiver is set to expire on December 31, 2014. This Waiver has been in effect for the past five years and has become standard operating procedure on transactions involving homes being sold within 90 days of acquisition. If HUD/FHA does not extend this Waiver, home sellers (with some limited exceptions) will have to wait at least 90 days to sell their house to a Borrower who is seeking FHA insured loan financing.
This is rather unfortunate as there are many investors who have been successfully acquiring, rehabbing and selling properties well within a 90 day time frame. Without this Waiver in place, these investors would simply not entertain offers from prospective FHA borrowers since there would be added holding costs as well as the risk of vandalism in holding such properties for more than 90 days.
The intent of HUD’s Property Flipping Rule was to discourage the practice of an investor acquiring a property, performing cosmetic type repairs and quickly “flipping” the property to a first-time borrower at an inflated price, the Waiver criteria established by HUD has been quite effective in addressing these concerns.
To meet the terms of the existing Waiver, if the sales price of the subject property is 20% or more above the seller’s acquisition price, a second appraisal is obtained to support the increase in value. A Home Inspection report must also be obtained to verify that sufficient renovation and all health & safety needed repairs have been completed. If not, these repairs must be completed before closing the new transaction.
Unless HUD/FHA can provide data to document the added risks to the FHA insurance fund that this five year Waiver has caused, it is difficult to understand why this Waiver would not be extended again. As HUD itself proclaimed in a press release announcing the first extension, this Waiver “will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.” Let’s all hope that this same sentiment exists at this time with the senior leadership at HUD and the Waiver will be extended once again.