FHA almost got it right…but missed the mark.

On June 9th the FHA made a change to their long standing policy which requires a 90 day waiting period before an FHA insured loan can be used to purchase a home where title (or ownership) has been transferred.

Upon the announcement from FHA there were immediate shouts of joy heard amongst investors, Realtors, loan officers and anyone interested in seeing the housing market work through its current issues.

I admit I was amongst those shouting for joy. But my joy was to be short lived. The waiver of the 90 day anti-flipping rules does not apply to investors or private owners who buy a property to fix up and resell.

A careful reading of the actual document signed by the secretary of housing HERE indicates that this only applies to lenders who foreclose on a property who are not already exempted from the 90 day waiting period. Apparently certain lenders that are government sponsored (e.g Fannie Mae and Freddie Mac) were exempt, so they could foreclose (which transfers title) and immediately put the property up for sale and then sell it to someone who was using an FHA insured loan.

Some non FHA lenders (conventional) have also adopted similar “anti-flipping” rules, but this move from FHA comes in response to the glut of homes that are being foreclosed upon by non-exempt lenders who are now having issues getting the foreclosures off their books. The main problem is that buyers who require FHA financing are not able to even submit their loan until the 90 day period has passed. This means that a lender will have a foreclosed home on their books for at least 120 days and thats assuming that a buyer is in place and willing to wait until the 90 day period ends and submit their loan on day 91. A cumbersome process indeed.

While I would have liked to see FHA drop the rule in regard to investors…it was too much to hope for. I’m afraid the rules are there to stay, at least for now.