The Department of Housing and Urban Development on Friday officially suspended its anti-flipping rule for the rest of this year to facilitate the financing and sale of newly renovated foreclosed properties.
The anti-flipping rule prohibits Federal Housing Administration lenders from financing single-family properties that have been resold within 90 days.
HUD initiated the suspension in February 2010 because the anti-flipping restriction was blocking potential FHA borrowers -- particularly first-time homebuyers -- from purchasing affordable REO properties.
HUD extended the suspension until December 31, 2011. FHA commissioner David Stevens said this action will "help to move foreclosed properties off the market and reduce the number of vacant homes in neighborhoods throughout this country."
Since suspending the anti-flipping rule last February, FHA has insured more than 21,000 mortgages ($3.6 billion UPB) on properties that are resold within 90 days of acquisition.
HUD requires that all sales be "arms length" transactions with the lender demonstrating that the property was not subject to prior flipping and that the home was fairly and openly marketed for sale.
In cases where the sales price is 20% or more above the seller's acquisition cost, the lender must "justify and document the reasons for the increase in value," HUD said.
In 2003, HUD finalized the anti-flipping rule because too many of these quick sales with FHA financing were made at grossly inflated prices and often involved fraudulent activities.
