Escrow Trust Advisors | FHA Waives Anti-Flipping Rule to Spur Real Estate Growth
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FHA Waives Anti-Flipping Rule to Spur Real Estate Growth

FHA Waives Anti-Flipping Rule to Spur Real Estate Growth

Doing its part to spur growth in real estate – the segment of the economy hit hardest by the recession – the FHA announced it will again delay implementation of an anti-flipping rule. Meant to prohibit buyers from obtaining an FHA-backed loan for a home owned by the seller for less than 90 days, the rule leaves “flippers” unable to move properties quickly, adding to continued discomfort in the housing market. By implementing the waiver, the FHA gives buyers an additional financing option on the glut of bank- and HUD-owned properties.

“We must make every effort to promote recovery in every responsible way we can,” stated FHA’s acting commissioner, Carol Galante. Speaking with DSNews.com, she went on to say, “This extension is intended to accelerate the resale of foreclosed properties in neighborhoods struggling to overcome the possible effects of abandonment and blight.”

To avoid potential predatory activity, the waiver contains specific language and conditions to prevent over-inflated transactions. For one thing, FHA-backed financing must be conducted at arms-length, allowing no link between buyers and sellers. Another aspect of the waiver requires documentation to justify any sale price 20% or more over the seller’s acquisition cost.

Most flipping activity occurs well within 90 days of purchase. Before allowing the waiver, FHA’s research concluded that by disallowing flipped properties – at least on a temporary basis – it could hamper an important part of the recovery. Since its implementation in February, 2010, FHA has backed 42,000 mortgages worth in excess of $7 billion. Without the waiver in place, those transactions might never have taken place, putting further strain on an already tenuous housing market.