Does any one know who David H. Stephens is? Up until April of this year he was the Assistant Secratary of FHA. He was the one who drafted the waiver for the 90 day flip rule we first heard about in January of 2010 that was put into effect 2/1/2010 and extended earlier this year. Has anyone ever seen a copy of those guidelines? I didn’t think so. Judging from the amount of confusion I see during this process it has become apparent that most mortgage brokers haven’t read it either. Its time that we let the cat out of the bag. Here are a few of the questions answered.
Why do you need a second appraisal?
You don’t! The lender does and they have to pay for it. The lender is only required to have a second appraisal if the seller is profiting more then 20% of the acquisition price. This is done in conjunction with other things to prove to the underwriter why the seller is profiting over 20%. The seller isn’t allowed to profit more then this unless they can show where they had to spend this money to rehab the property. Its up to the lender to put this documentation together and to also pay for the second appraisal. NOT THE BUYER!
Why do I need a home inspection?
You don’t! Again, if the profit margin is over 20% then the lender is required to have a home inspection completed and can request the buyer to pay for it. All areas of the home must be inspected; but guess what? The guidelines specifically say that only “structural and health and safety concerns must be addressed”. So even though we do an inspection, a second report can be written addressing those issues and turned over to the underwriter so that a request for repairs can be made. There are no specific details of this inspection listed or the format in which it has to be written in the waiver guidelines.
Who has to order the home inspection?
The lender, the seller, or the buyer can order the home inspection. The lender can request that the buyer pay for it and a copy of the report must be given to the buyer regardless of who orders the inspection. I suppose in California this shouldn’t be an issue with our disclosure laws.
I know this is going to stir the pot up a little. SO WHAT! Some of the buyers out there may be entitled to a refund from the lender for paying for the second appraisal even though it should have not been. It may be possible that some of the properties don’t even go over the 20% profit margin. Maybe the lender is requiring repairs to be made that aren’t required under the guidelines. Its already ridiculous that an investor who buys a property off the courthouse steps sight unseen and forks out his own money to rehab it would be put under a more stringent requirement then the bank places on itself when it sells some dilapidated property to a first time home buyer “AS IS” with no restrictions other then some walk through done by an appraiser who in most situations doesn’t have guidelines of his/her own. My goal is to have some consistency in this process. Something that I see a total lack of. I am not sure if agents have actually ever seen a copy of the waiver and its guidelines. At the end of 2010 the FHA opened this area up for comments with industry professionals before extending the waiver. 8 people responded! I have posted links to both the original draft and the extension below in PDF format. Read them carefully and know your business.
KNOWLEDGE IS POWER!
Original Flip Waiver
Current Flip Waiver
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