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HUD Flipping Rule Restricts Legitimate FHA Home Re-sales

Published on May 1, the rule, “Prohibition of Property Flipping in HUD’s Single Family Mortgage Insurance Programs,” is intended to curb the practice of property flipping, a goal that NAHB supports.

However, the new rule is preventing home builders from accepting home buyers’ existing homes as trade-ins to facilitate new home purchases if the older home is to be refinanced using an FHA-insured loan within 90 days of the trade-in.

“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,” the rule flatly states.

A proposed rule appearing in the Sept. 5, 2001 Federal Register allowed for exceptions to the property flipping restrictions in cases where there are justifiable circumstances for the quick and profitable resale of a recently acquired property.

However, that provision was left out of the final rule.

In a July 7 letter to John C. Weicher, assistant secretary for housing and FHA commissioner, Rayburn expressed concern over the unintended impact of the new rule and suggested changes that would reduce the rule’s impact on legitimate business transactions without diluting its effectiveness.

“A legitimate seller should be able to provide a lender with complete documentation of their cost of acquiring the home, any repairs that have been made and all expenses incurred in conjunction with the home, including sales costs,” Rayburn wrote.

“Additional documentation could be required to verify that the home is sound and that the price of the re-sale is in line with the market for that home,” he said.

NAHB is continuing to work with HUD to resolve this issue.

For further information, e-mail Bill Renner, NAHB’s director of single-family finance, or call him at 800-368-5242 x8597.

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