The Department of Housing and Urban Development is in the process of approving another one-year suspension of its anti-flipping rule on foreclosed properties bought with FHA loans.
HUD initiated the first suspension on February 1, 2010 to further sales of foreclosed properties. A continuation of the suspension is now going through "clearance," a HUD spokesman told National Mortgage News.
The anti-flipping rule prohibits Federal Housing Administration lenders from financing single-family properties that have been resold within 90 days.
Back in 2009, investors claimed the 90-day restriction prevented them from quickly renovating foreclosed homes and selling them to first-time homebuyers. HUD secretary Shaun Donovan agreed and initiated the suspension.
"FHA borrowers, because of the restrictions, have often been shut out from buying affordable properties," Donovan said last January.
HUD initiated the anti-flipping rule early last decade because FHA discovered that too many of these quick sales were made at grossly inflated prices and involved fraudulent activities.
"HUD believes that short re-sales executed within 90 days imply pre-arranged transactions that often prove to be among the most egregious examples of predatory lending practices," the final rule says.
In suspending the anti-flipping rule last February, HUD required that all sales must be "arms length" transactions. And the lender has to meet specific conditions if the price of the property is 20% or more above the seller's acquisition cost.
