Written By: Stacey Sprain
It’s been a BIG news week for FHA and is about to get even bigger with the anticipation of a number of Mortgagee Letters to be issued January 21st which will communicate further significant tightening of FHA qualifying calculations and guideline requirements.
Temporary Flipping Waiver
On Friday, January 15th, HUD released their most recent Waiver of Requirements of 24 CFR 203.37a(b)2. The waiver, which is in regards to time restrictions for property sales, applies only to FHA forward mortgages, not HECMs, and is effective 02/01/2010-02/01/2011.
As copied from the Code of Federal Regulations, here is that exact portion of the Code that is being waived:
a(b) Time restrictions on re-sales—(1) General. The eligibility of a property for a mortgage insured by FHA is dependent on the time that has elapsed between the date the seller acquired the property (based upon the date of settlement) and the date of execution of the sales contract that will result in the FHA mortgage insurance (the re-sale date). The mortgagee shall obtain documentation verifying compliance with the time restrictions described in this paragraph and must submit this documentation to HUD as part of the application for mortgage insurance, in accordance with §203.255(b).
(2) Re-sales occurring 90 days or less following acquisition. If the re-sale date is 90 days or less following the date of acquisition by the seller, the property is not eligible for a mortgage to be insured by FHA.
However, to summarize, the HUD announcement goes on to state the following conditions for the 90 day time-restraint waiver to be effective on a specific transaction:
- The transaction must be at arms length; meaning there cannot be any identity of interest between any of the interested parties to the transaction. This means that the lender must perform due-diligence to determine there are no undisclosed relations of interest which should include the following:
- LLCs, partnerships, corporations, etc. must be fully investigated to determine exactly who holds interest in the business. No party with interest in the business should be related to any other party participating in the transaction.
- 12-24 month minimum chain of title from the title company should be reviewed carefully to establish that there are no patterns of flipping between interested parties, that the owner of record listed in title is the same seller represented as the seller on the sales contract and is also the same owner of record listed in any public property tax record. You should never rely on the transfer records based on the prior 36 month history listed in the appraisal alone but should rather obtain the chain of title directly from the title company.
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- Marketing history in regards to the sale of the property should be carefully reviewed to determine that it was marketed for sale openly via MLS, Sheriff Sale, Auction, FSBO, etc. If the marketing of the property cannot be determined through public means, be cautious!
- Sales prices for recent transfers of the subject property must be verified and if the proposed transaction contains a sales price that represents a 20% or greater increase from the prior sale price of the property, the lender must justify the increase in price/value using any of the following methods:
- Obtain specific documentation from the seller for improvements made to the property between the seller’s acquisition date and proposed sale of the property. This would include copies of paid invoices or receipts from contractors, builders, suppliers etc. with a complete list of the upgrades, repairs and/or improvements made
- Obtain a 2nd appraisal to justify the property sale price/value and recent improvements/repairs/upgrades made to the property
- Obtain a property inspection report from a state-licensed/certified inspector that is to be given to the buyer prior to closing and which must include:
- Inspection of the foundation, floor, ceiling, walls and roof;
- Inspection of the exterior siding, doors, windows, balconies, decks, walkways, driveway
- Inspection of the roofing, plumbing, electric, heating and air systems;
- Inspection of the interior of the property including insulation and ventilation systems, fireplaces, fuel-burning appliances
The waiver ONLY waives the 90 day timing restraint requirement IF the conditions listed above are met. Don’t forget that all other requirements set forth in Mortgagee Letter 2006-14 apply for all other properties acquired for up to one year from the seller’s acquisition date. In those situations, when the sales price increases 100% or greater, 2nd appraisal and other potential documentation requirements must be applied.
I will pass on more information next week in regards to the upcoming MIP rate hikes, minimum fico score requirements, minimum downpayment requirements and reduction to maximum allowed seller concessions. Those changes will have major affects on FHA qualifying in the near future!
Need FHA Training? CLICK HERE: http://www.FHA-Classes.org
About The Author
Stacey Sprain - As an NAMP® staff writer, Ms. Stacey Sprain is currently a NAMP® member in good standing, and is a NAMP® Certified Ambassador Loan Processor (NAMP®-CALP). With over 15+ years of mortgage banking experience, Stacey is also a Quality Control Manager for a major mortgage lending institution. If you would like to become a volunteer writer for us, please email us at: contact@mortgageprocessor.org.
