[Federal Register Volume 75, Number 98 (Friday, May 21, 2010)]
[Notices]
[Pages 28632-28634]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-12148]
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
[Docket No. FR-5397-N-01]
RIN 2502-ZA05
Federal Housing Administration (FHA)--Temporary Exemption From
Compliance With FHA's Regulation on Property Flipping
AGENCY: Office of the Assistant Secretary for Housing--Federal Housing
Commissioner, HUD.
ACTION: Notice.
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SUMMARY: This notice announces that FHA has waived its regulation that
prohibits the use of FHA financing to purchase properties that are
being resold within 90 days of the previous acquisition. Prior to the
waiver of this regulation, which took effect for all sales contracts
executed on or after February 1, 2010, 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. During this period of high foreclosures, FHA seeks 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. While the waiver is granted for the purpose of stimulating
rehabilitation of foreclosed and abandoned homes, the waiver is
applicable to all properties being resold within the 90-day period
after prior acquisition, and is not limited to foreclosed properties.
The waiver, however, has conditions, and eligible mortgages must
meet the conditions specified in this notice. Additionally, the waiver
is not applicable to mortgages insured under HUD's Home Equity
Conversion Mortgage (HECM) Program.
Although the waiver is currently in effect, HUD seeks comments from
industry, potential purchasers, and other interested members of the
public on the conditions which must be met for the waiver to be
provided. Comments will be taken into consideration in determining
whether any modifications should be made to the waiver eligibility
conditions.
DATES: Effective Date: February 1, 2010 through February 1, 2011.
Comment Due Date. June 21, 2010.
ADDRESSES: Interested persons are invited to submit comments regarding
this rule to the Regulations Division, Office of General Counsel, 451
7th Street, SW., Room 10276, Department of Housing and Urban
Development, Washington, DC 20410-0500. Communications must refer to
the above docket number and title. There are two methods for submitting
public comments. All submissions must refer to the above docket number
and title.
1. Submission of Comments by Mail. Comments may be submitted by
mail to the Regulations Division, Office of General Counsel, Department
of Housing and Urban Development, 451 7th Street, SW., Room 10276,
Washington, DC 20410-0500.
2. Electronic Submission of Comments. Interested persons may submit
comments electronically through the Federal eRulemaking Portal at
http://www.regulations.gov. HUD strongly encourages commenters to
submit comments electronically. Electronic submission of comments
allows the commenter maximum time to prepare and submit a comment,
ensures timely receipt by HUD, and enables HUD to make them immediately
available to the public. Comments submitted electronically through the
http://www.regulations.gov Web site can be viewed by other commenters
and interested members of the public. Commenters should follow the
instructions provided on that site to submit comments electronically.
Note: To receive consideration as public comments, comments
must be submitted through one of the two methods specified above.
Again, all submissions must refer to the docket number and title of
the rule.
No Facsimile Comments. Facsimile (FAX) comments are not acceptable.
Public Inspection of Public Comments. All properly submitted
comments and communications submitted to HUD will be available for
public inspection and copying between 8 a.m. and 5 p.m. weekdays at the
above address. Due to security measures at the HUD Headquarters
building, an advance appointment to review the public comments must be
scheduled by calling the Regulations Division at 202-708-3055 (this is
not a toll-free number). Individuals with speech or hearing
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impairments may access this number through TTY by calling the Federal
Information Relay Service at 800-877-8339. Copies of all comments
submitted are available for inspection and downloading at http://www.regulations.gov.
FOR FURTHER INFORMATION CONTACT: Margaret E. Burns, Director, Office of
Single Family Program Development, Office of Housing, Department of
Housing and Urban Development, 451 7th Street, SW., Washington, DC
20410-8000; telephone number 202-708-2121 (this is not a toll-free
number). Persons with hearing or speech impairments may access this
number through TTY by calling the toll-free Federal Information Relay
Service at 800-877-8339.
SUPPLEMENTARY INFORMATION:
I. Background
Section 203.37a(b)(2) of HUD's regulations (24 CFR 203.37a(b)(2))
establishes FHA's rule on property flipping and this section provides
that FHA will not insure a mortgage for a property if the contract of
sale is executed within 90 days of the acquisition of the property by
the seller. Section 203.37a(c) lists the sales transactions that are
exempt from this rule. The exempt transactions include, for example,
sales by HUD of real estate-owned (REO) properties under HUD's
regulations in 24 CFR part 291, sales by another federal agency of REO
properties, sales of properties by nonprofit organizations that have
been approved to purchase and resell HUD REO properties, and sales by
state- and federally-charted financial institutions and government
sponsored enterprises, to name a few.
Property ``flipping'' refers to the practice whereby a property
recently acquired is resold for a considerable profit with an
artificially inflated value, often the result of a lender's collusion
with the appraiser. Most property flipping occurs within a matter of
days after acquisition, and usually with only minor cosmetic
improvements, if any. In an effort to preclude this predatory lending
practice with respect to mortgages insured by FHA, HUD issued a final
rule on May 1, 2003 (68 FR 23370) that provides in 24 CFR 203.37a that
FHA will not insure a mortgage 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 Sec. 203.37a(c). In a final rule published on June 7,
2006 (71 FR 33138), HUD expanded the exceptions contained in Sec.
203.37a(c) to the 90-day time restrictions to include such transactions
as sales of single family properties by government-sponsored
enterprises (GSEs), state- and federally-chartered financial
institutions, nonprofits organizations approved to purchase HUD Real
Estate-Owned (REO) single family properties at a discount with resale
restrictions, local and state governments and their instrumentalities,
and, upon announcement by HUD through issuance of a notice, sales of
properties in areas designated by the President as federal disaster
areas.
The downturn in the housing market over the last two years has seen
a rapid rise of homeowners defaulting on mortgages and consequently a
rise in foreclosed homes. A variety of measures to avoid foreclosures
have been initiated at the federal, state and local level, most notably
the Administration's Home Affordable Modification Program. Despite
these efforts to keep families in their homes, foreclosures remain high
and not only do foreclosures affect the families that lost their homes,
but they affect neighborhoods and communities. While HUD continues its
efforts to help homeowners remain in their homes, through waiver of its
regulation on property flipping, HUD seeks to help stabilize
neighborhoods and communities.
HUD undertook similar waiver action in a narrower context in 2009,
regarding HUD's Neighborhood Stabilization Program (NSP). NSP, a
temporary program authorized by the Housing and Economic Recovery Act
2008 (Pub. L. 110-289, approved July 30, 2008), was established for the
purpose of stabilizing communities that have suffered from foreclosures
and abandonment, by allocating funds through a formula to States and
units of general local government, for the purchase and redevelopment
of foreclosed and abandoned homes and residential properties. HUD's
waiver of its regulation on property flipping for NSP removed an
impediment to the purchase of affordable homes that had been
rehabilitated and sold under this program. With the home foreclosure
rate remaining high across the nation, HUD has determined that a
temporary waiver of this regulation on a nationwide basis, subject to
certain conditions, may contribute to stabilizing real estate prices
and neighborhoods that have been heavily impacted by foreclosures. The
waiver of the regulation may facilitate the sale and occupancy of
foreclosed homes that have been rehabilitated by making the mortgages
of such homes eligible for FHA mortgage insurance. Again, however,
while the waiver is granted for the purpose of stimulating
rehabilitation of foreclosed and abandoned homes, the waiver is
applicable to all properties being resold within the 90-day period
after prior acquisition. The waiver is not limited to the resale of
foreclosed properties.
II. Eligibility for Waiver of 24 CFR 203.37a(b)(2)
To be eligible for the waiver of the Property Flipping Rule, an
FHA-approved mortgagee must meet the following conditions:
1. All transactions must be arms-length, with no identity of
interest between the buyer and seller or other parties participating in
the sales transaction. Some ways that the lender can ensure that there
is no inappropriate collusion or agreement between parties, are to
assess and determine the following:
a. The seller holds title to the property;
b. Limited liability companies, corporations, or trusts that are
serving as sellers were established and are operated in accordance with
applicable state and federal law;
c. No pattern of previous flipping activity exists for the subject
property as evidenced by multiple title transfers within a 12 month
time frame (chain of title information for the subject property can be
found in the appraisal report);
d. The property was marketed openly and fairly, through a multiple
listing service (MLS), auction, for sale by owner offering, or
developer marketing (any sales contracts that refer to an ``assignment
of contract of sale,'' which represents a special arrangement between
seller and buyer may be a red flag).
2. In cases in which the sales of the property is greater than 20
percent above the seller's acquisition cost, an FHA-approved mortgagee
is eligible for the waiver only if, the mortgagee:
a. Justifies the increase in value by retaining in the loan file
supporting documentation and/or a second appraisal, which verifies that
the seller has completed sufficient legitimate renovation, repair, and
rehabilitation work on the subject property to substantiate the
increase in value or, in cases where no such work is performed, the
appraiser provides appropriate explanation of the increase in property
value since the prior title transfer; and
b. Orders a property inspection and provides the inspection report
to the purchaser before closing. The mortgagee may charge the borrower
for this inspection. The use of FHA-approved inspectors or 203(k)
consultants is not
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required. The inspector must have no interest in the property or
relationship with the seller, and must not receive compensation for the
inspection for any party other than the mortgagee. Additionally, the
inspector may not: compensate anyone for the referral of the
inspection; receive any compensation for referring or recommending
contractors to perform any repairs recommended by the inspection; or be
involved with performing any repairs recommended by the inspection. At
a minimum, the inspection must include:
i. The property structure, including the foundation, floor,
ceiling, walls and roof;
ii. The exterior, including siding, doors, windows, appurtenant
structures such as decks and balconies, walkways and driveways.
iii The roofing, plumbing systems, electrical systems, heating and
air conditioning systems;
iv. All interiors; and
v. All insulation and ventilation systems, as well as fireplaces
and solid fuel-burning appliances.
3. Only forward mortgages are eligible for the waiver. Mortgages
insured under HUD's HECM program are ineligible for the waiver.
III. Compliance With the Paperwork Reduction Act
The information collection requirements applicable to this waiver
have been submitted to the Office of Management and Budget (OMB) under
the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) and assigned
OMB Control No. 2502-0059. In accordance with the Paperwork Reduction
Act, an agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information, unless the collection
displays a currently valid OMB control number.
IV. Period of Waiver Eligibility
This waiver announced by this notice became effective February 1,
2010, and shall expire for all sales contract entered into after
February 1, 2011, unless extended or withdrawn by HUD. By notice, HUD
shall notify the public of any extension or withdrawal of this waiver.
If as a result of this waiver, there is a significant increase in
defaults on FHA-insured mortgages and an increase in mortgage insurance
claims that are attributable to mortgages insured as a result of
exercise of this waiver authority, HUD may withdraw this waiver
immediately.
V. Solicitation of Public Comments
HUD welcomes comments on the conditions specified in this notice
for eligibility for waiver of its regulation on property flipping. As
stated in the Summary, comments will be taken into consideration in
determining whether any modifications should be made to the waiver
eligibility conditions.
Dated: May 12, 2010.
David H. Stevens,
Assistant Secretary for Housing-- Federal Housing Commissioner.
[FR Doc. 2010-12148 Filed 5-20-10; 8:45 am]
BILLING CODE 4210-67-P