mortgage

FHA waives rule against house flipping

Waiver not expected to result in fraud

The anti-flipping rule originally was imposed in 2003 to reduce mortgage fraud that involved quick resales of properties purchased through straw buyers and had artificially inflated appraisals.

The FHA granted a long list of exemptions from the rule. For example, homes sold by most government agencies and nonprofit organizations were exempt. That meant buyers who wanted to use an FHA loan could purchase those homes, but not other homes that had been bought and repaired by private investors, within 90 days. The waiver will level that playing field.

Skeptics might wonder whether the waiver could set off a rise in loan fraud. Thompson suggests that's unlikely because the loan environment has changed since the anti-flipping rule was enacted. One change is that drive-by appraisals, which were quite common, have given way to stricter appraisals rules and that lenders now examine appraisals "with a fine-toothed comb," he says. That should reduce the risk of fraud.

The bottom line on property flipping and fraud, according to a letter officials at the California Association of Realtors sent to the FHA in November 2009, is that "a property resold with 90 days by a legitimate investor is no longer synonymous with fraudulent or predatory practices."

Homebuyers who need an FHA loan should be able to take it to the bank.

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