FHA Waives 90-Day Flip Rate

For one year, the Federal Housing Administration (FHA), which insures mortgages for low-income and first-time home buyers, will insure foreclosed properties marketed and sold by property-disposition firms on behalf of lenders. The properties, which must be purchased by owner occupants, will no longer be subject to the customary 90-day waiting period. The waiting period, which was introduced in 2003 to counter predatory lending and house flipping (a practice that strips a home of its equity before being quickly resold at an inflated price to an unsuspecting buyer) initially never applied to properties sold by Fannie Mae, Freddie Mac, or state- and federally chartered financial institutions.

'A glut of foreclosed and abandoned homes harms neighborhoods, frustrates home buyers and delays a community's recovery,' said Brian D. Montgomery, Assistant Secretary for Housing-Federal Housing Commissioner, in a statement announcing the change. 'The action we take today will allow home buyers to purchase these homes in much greater numbers and ease the excess supply of unsold homes in neighborhoods across the country.'

Stabilizing neighborhoods
FHA officials said the new temporary policy will help stabilize neighborhoods experiencing high rates of foreclosure by reducing the inventory of unsold properties. Many foreclosed properties remain vacant for months, inviting vandalism and stripping the values of surrounding homes.

According to a recent report from RealtyTrac, banks repossessed twice as many homes in May, while foreclosure filings rose 48 percent from a year ago as falling home prices trapped borrowers in mortgages they couldn't afford. To reduce the bloated inventory, lenders have hired companies, called property-disposition firms, that specialize in marketing and selling foreclosed homes. Some experts believe the temporary one-year policy for foreclosure insurance signals the Bush administration may be easing its opposition to using taxpayer money to rescue lenders and investors in favor of letting the mortgage industry modify home loans to ease the housing-market slump. Short of a bail-out, the administration appears to be taking a more direct role in lending lenders a helping hand.

Read the full text of the new FHA policy.

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