FHA Lifts 90-day Flip Rule

In a move that might help move some latent bank-owned inventory, the federal government will temporarily lift its 90-day waiting period for resale properties that use FHA-guaranteed mortgages.

Since 2003, properties financed with FHA programs could not be resold within the first 90 days of the loan term–a guard against predatory lending and flips with cursory rehabs. FHA is removing that anti-flip rule for a one-year period. Other conforming loan programs (Fannie Mae and Freddie Mac) never did adopt similar rules.

The problem I see with this move is that many bank-owned (REO) properties aren’t in the physical condition that qualify for FHA mortgages. If defaulting borrowers couldn’t pay their mortgage, they likely couldn’t maintain the home, either. Consequently, many of the REO properties I’ve seen are distressed.

But FHA financing is back in vogue, and perhaps it will provide incentive for banks to make the necessary repairs to make their holdings financeable under FHA guidelines–growing the market for their growing portfolio of orphaned properties. Rehabbing foreclosed homes could also stabilize overall values of neighborhoods and adjoining properties by minimizing the deep discounts given to all-cash buyers.

Image by BombDog, used under Creative Commons license.

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2 comments June 13th, 2008