FHA: Extends 'Anti-Flipping Waiver'

As published in the Federal Register today, February 3, 2011, FHA is extending the availability of the temporary waiver of its regulation that prohibits the use of FHA financing to purchase single family properties that are being resold within 90 days of the previous acquisition, until December 31, 2011.

This waiver, which was issued in January 2010, took effect for all sales contracts executed on or after February 1, 2010, and was set to expire on February 1, 2011.

We provided information about this 'anti-flipping waiver' in our January 25, 2010 Compliance Alert.

Prior to the waiver, a mortgage was not eligible for FHA insurance if the contract of sale for the purchase of the property that is the subject of the mortgage is executed within 90 days of the prior acquisition by the seller and the seller does not come under any of the exemptions to this 90-day period that are specified in the regulation.

However, as a result of the high foreclosures that have been taking place, FHA offered the waiver as a means to:

• "encourage investors that specialize in acquiring and renovating properties to renovate foreclosed and abandoned homes with the objective of increasing the availability of affordable homes for first-time and other purchasers and helping to stabilize real estate prices as well as neighborhoods and communities where foreclosure activity has been high."

Applicability

• The waiver is applicable to all single family properties being resold within the 90-day period after prior acquisition, and was not limited to foreclosed properties.  

• Additionally, the waiver is subject to certain conditions, and eligible mortgages must meet these conditions to take advantage of the waiver.
• The waiver is not applicable to mortgages insured under HUD's Home Equity Conversion Mortgage (HECM) Program.

Timeframe

• FHA is still interested in receiving comments from the public and will accept comments until April 4, 2011.
• Effective Date: February 1, 2011 through December 31, 2011.

Visit Library

• FHA: Temporary Exemption From Compliance With FHA's Regulation on Property Flipping Extension of Exemption, Federal Register: 76/23 (2/3/11)
• FHA 'Anti-Flipping Waiver' - Temporary Exemption from Compliance with FHA's Regulation on Property Flipping Extension of Exemption (1/28/11)
• FHA Extends 'Anti-Flipping Waiver' to Help Stabilize Housing Market, Press Release, HUD No. 11-007 (1/28/11)

FHA Proposes to Revise Underwriting Guidelines

Overview

On July 15, 2010, the Federal Housing Administration (FHA) published a notice in the Federal Register to revise its underwriting guidelines for Single Family loan originations and elicited comments from the public. The notice (hereafter "Proposal") would tighten only those portions of its underwriting guidelines that have been found to present an excessive level of risk to both homeowners and FHA.

FHA proposes to:

• Reduce the amount of closing costs a seller may pay on behalf of a home buyer purchasing a home with FHA-insured mortgage financing for the purposes of calculating the maximum mortgage amount. This proposed cap on ''seller concessions'' (i.e., also known as "seller contributions") will minimize FHA exposure to the risk of adverse selection.

• Introduce a credit score threshold as well as reduce the maximum loan-to-value (LTV) for borrowers with lower credit scores, who represent a higher risk of default and mortgage insurance claim.

• Tighten underwriting standards for mortgage loan transactions that are manually underwritten. These transactions have resulted in high mortgage insurance claim rates and present an unacceptable risk of loss.

Comment Due Date: August 16, 2010

If you have any questions about this matter or would like assistance with mortgage compliance, please contact Jonathan Foxx, Managing Director or call 516-442-3456 x 100.

Highlights

Reduction of Seller Concession

HUD's existing policy regarding concessions is found in Handbook 4155.1, section 2.A.3 and Handbook 4155.2, section 4.8, which define seller concessions and provide that any concessions exceeding 6 percent must be treated as inducements to purchase, resulting in a reduction in the FHA mortgage amount. This notice proposes to reduce the 6 percent limitation defined in the Handbooks to 3 percent.

New LTV Ratio and Credit Score Requirements

FHA is proposing to introduce a minimum decision credit score of no less than 500 to determine eligibility for FHA financing and reduce the maximum LTV for all borrowers with decision credit scores of less than or equal to 579.

Maximum FHA-insured financing (96.5 percent LTV for purchase transactions and 97.75 percent LTV for rate and term refinance transactions) would be available only to borrowers with credit scores at or above 580. All borrowers with decision credit scores between 500 and 579 would be limited to 90 percent LTV.

Manual Underwriting

On all manually underwritten mortgage loans, borrowers will be required to have minimum cash reserves equal to one monthly mortgage payment, which includes principal, interest, taxes, and insurance(s). Maximum housing and debt-to-income ratios will be set at 31 percent and 43 percent, respectively. Borrowers with credit scores of 620 or higher may exceed the qualifying ratios of 31/43 percent, not to exceed 35/45 percent provided that they are able to meet at least one of the compensating factors stated in the Proposal.

To exceed the qualifying ratios of 35/45 percent, not to exceed 37/47 percent, borrowers must meet at least two compensating factors, as stated in the Proposal. Any other compensating factors are not acceptable. Mortgage lenders cannot use compensating factors to address unacceptable credit. While this notice does not address the interplay of the housing and debt-to-income ratios, FHA is seeking comment on how to serve borrowers with housing ratios above the threshold and debt-to-income ratios below the threshold (i.e., 36/36 percent).

Visit Library for Issuance

Risk Management Initiatives: Reduction of Seller Concessions,
New Loan-to-Value, and Credit Score Requirements
FR: Vol. 75, No. 135, 7/15/10