Allan S. Glass on Realtor.com

In a surprise move late Friday afternoon, HUD Secretary Shaun Donovan announced a temporary policy expanding the reach of FHA loans allowing for quick resale of distressed properties to FHA borrowers.  Commonly known in the industry as the “90 day flip rule”, CFR 203.37a(b)(2) prohibits, with few exceptions, the ability of private investors to resale a property to home-buyers who use an FHA loan to finance their purchase within 90 days from the previous acquisition.

Many investors who buy distressed assets in dilapidated conditions found themselves holding vacant homes for after rehab for an additional 30-60 days risking vandalism and effectively shutting out FHA buyers desperately looking to buy homes.  In the HUD press release FHA commissioner David H. Stevens acknowledged, ” FHA borrowers, because of the restrictions we are now lifting, have often been shut out from buying affordable affordable properties.  This action will enable our borrowers, especially first-time buyers, to take advantage of this opportunity.”

The temporary waiver will begin February 1, 2010 and will remain in affect for one year unless otherwise expanded by the FHA Commissioner.  Hoping to curb fraud and and other predatory practices the waiver will be limited to transactions able to meet the following conditions:

• All transactions must be arms length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.
• If the resale value is 20 percent or greater than the previous acquisition, the waiver will only apply if the lender takes additional steps.  These include a second appraisal that notes and justifies the price increase through sufficient and legitimate repairs and renovation, and lender ordered property inspections from non-interested parties covering all the major building systems from roofs, foundations, to electrical and plumbing.
• The waiver will only apply to forward mortgages (new loans) and will not apply to Home Equity Conversion Mortgages (HECM).

Many in the private investment community have viewed the 90 day rule as unfair and unwarranted,  suggesting that the rule is unequally applied, per previous exemptions granted to banks, HUD, non profit institutions, and other government sponsored enterprises.  Many real estate agents who specialize in representing FHA buyers have been equally frustrated by sellers who refuse to accept offers from their clients due to these same restrictions.

As noted in the waiver itself, the FHA findings suggest that this move should help address the foreclosure crisis by quickly moving distressed inventories through the system and back into the possession of qualified homeowners.  It should further enhance the FHA’s opportunity to dispose of single family REO properties in a way that maximizes returns to the FHA mortgage insurance fund.  Also mentioned, the waiver should greatly enhance the FHA’s opportunity to fulfill its mission by helping many homebuyers find affordable housing by providing insured mortgage financing to those otherwise locked out of the mortgage markets due to the tightened credit standards.

This move should also provide greater opportunity for private investors who buy REO property, short sales and third party buyers at trust sales.  Allowing for a faster turn around means that more homes can be purchased by these groups and newly renovated homes can find their way back into the hands of capable and willing home owners sooner rather than later.

The Office of Federal Housing Enterprise Oversight, charged with the stewardship of Fannie Mae and Freddie Mac have released information regarding new conforming loan limits in high cost areas in the United States.

In particular Los Angeles Metropolitan area which also includes Orange County will have increased limits.  Affective retroactively, and beginning January 1, 2009 those limits shall be:

• Single Family Homes - $729,750
• 2 unit properties - $934,200
• 3 unit properties - $1,129,250
• 4 unit properties - $1,403,400

The FHFA has also released a statement further clarifying the limit increases brought about by the American Recovery and Reinvestment Act signed into law last Tuesday by President Obama.

You may also search other areas in California or across the country using HUD’s FHA Loan Limit search page.

One of the more common questions I get both from home-buyers and from new investors relates to FHA conforming loan limits.   Specifically, what are they and what type of properties do they apply to?  The answer actually depends on when you ask and where you’re buying.

More specifically, the Housing and Economic Recovery Act of 2008 (HERA) changed Fannie Mae’s charter to expand the definition of a “conforming” loan.  Generally, the conforming loan limits apply to single family homes, 2, 3, and 4 unit dwellings.  The maximum conforming loan amounts have general limits which apply to most areas of United States and a scaled limit for what the Federal Housing Finance Agency (FHFA) designates as High Cost Areas.

Following the provisions of HERA, FHFA has set loan limits for “high-cost” areas in 2009.  These limits are set equal to 115% of local median house prices and cannot exceed 150% of the standard limit, which is $625,500 for one-unit homes in the continental U.S.  The new limits affect loans purchased by an Enterprise in 2009, unless the loans were made permanently eligible for purchase under the Economic Stimulus Act  enacted earlier in 2008  and has generally higher limits.

To be sure, each buyer can review the Fannie Mae Loan Limit Lookup Table to determine where their metropolitan area falls.  the table can be downloaded here.

I’ve also put together a quick reference chart showing limits amounts for SFR’s and 2-4 units for both general guidelines and high cost areas.  you can view that chart here.

A detailed press release from the FHFA can also be downloaded here.