With certain exceptions, Federal Housing Administration (FHA) regulations prohibit insuring a mortgage on a home owned by the seller for less than 90 days. Originally, this regulation was waived through January 31, 2011, but the waiver is now extended through the remainder of 2011 (unless otherwise extended or withdrawn by FHA). This action will permit buyers to continue to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. The extension is intended to stabilize home values and to accelerate the resale of foreclosed homes in neighborhoods struggling to overcome possible property abandonment and blight. FHA Commissioner David H. Stevens said, “Because of past restrictions, FHA borrowers have often been shut out from buying affordable properties. This action enables our borrowers, especially first-time buyers, to take advantage of this opportunity and buy a home that has recently been rehabilitated. It will also help to move more foreclosed properties off the market and reduce the number of vacant homes in neighborhoods throughout this country.”
The waiver contains strict conditions and guidelines to assure that predatory practices are not allowed. To protect FHA borrowers against predatory practices of “flipping” where properties are quickly resold at inflated prices to unsuspecting borrowers, this waiver continues to be 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 regular mortgages and does not apply to “reverse” Home Equity Conversion Mortgages (HECM).