Only the actual owner of a home can sell that home with Federal Housing Administration financing, and in an attempt to discourage flipping, homes sold within 90 days of purchase won’t be eligible for FHA financing, the U.S. Department of Housing and Urban Development ruled Wednesday.
The rules provide that property acquired by the seller is not eligible for the buyer to obtain an FHA-insured mortgage unless the seller has owned that property for at least 90 days. The seller must also be the owner of record.
HUD published the final rule Wednesday tightening regulations against property flipping in its mortgage insurance programs. The rule goes into effect July 9, the agency said.
In general, “flipping” refers simply to reselling a property very soon after it is purchased, but all too often, property flips involve mortgage fraud or predatory lending practices. HUD’s regulations focus on flipping involving property resold a short period of time after it is purchased by the seller for a considerable profit with an artificially inflated value, often abetted by a lender’s collusion with the appraiser.
FHA financing will not be available for homes sold within 90 days of purchase, according to a mortgagee letter from HUD. Sellers will have to provide additional valuation data to sell properties between 91 and 180 days after the last transaction, in cases where the new sales price is 100 percent or more higher than the previous sales price, the mortgagee letter said.
The letter also listed the entities that are exempt from these rules. Those entities are HUD itself, Fannie Mae, Freddie Mac, lenders selling real estate owned portfolios, local or state housing agencies, nonprofits with HUD permission to purchase discounted real estate-owned properties, inherited properties and dwellings located in presidentially declared disaster areas.
FHA’s policy prohibiting property flipping eliminates the most egregious examples of predatory flips of properties within the FHA mortgage insurance programs, the agency said.