Federal Housing Administration (FHA): Temporary Exemption From Compliance With FHA's Regulation on Property Flipping Extension of Exemption, 81363-81365 [2011-33411]

Download as PDF Federal Register / Vol. 76, No. 249 / Wednesday, December 28, 2011 / Rules and Regulations PART 901—REGULATIONS GOVERNING THE PERFORMANCE OF ACTUARIAL SERVICES UNDER THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 Paragraph 1. The authority citation for part 901 continues to read in part as follows: ■ Authority: These rules are issued under authority of 88 Stat.1002; 29 U.S.C. 1241, 1242. See also 5 U.S.C. 301; 31 U.S.C. 330; and 31 U.S.C. 321. Par. 2. Section 901.11 is amended by: 1. Revising the first sentence of paragraph (f)(1)(i). ■ 2. Revising paragraph (l)(4)(ii). ■ 3. Revising the last sentence of paragraph (o) Example 4. (i), and paragraphs (o) Example 6. (iii) and (o) Example 7. (ii). The revisions read as follows: ■ ■ § 901.11 Enrollment procedures. * * * * * (f) * * * (1) * * * (i) Core subject matter is program content and knowledge that is integral and necessary to the satisfactory performance of pension actuarial services and actuarial certifications under ERISA and the Internal Revenue Code. * * * * * * * * (l) * * * (4) * * * (ii) Placement on the inactive roster after notice and right to respond. The Executive Director will move an enrolled actuary who does not submit a timely application of renewal that shows timely completion of the required continuing professional education to the inactive roster only after giving the enrolled actuary 60 days to respond as described in paragraph (l)(1) of this section. * * * * * (o) * * * Example 4. (i) * * * Accordingly, effective April 1, 2014, H is placed on the roster of inactive enrolled actuaries and is ineligible to perform pension actuarial services as an enrolled actuary under ERISA and the Internal Revenue Code. mstockstill on DSK4VPTVN1PROD with RULES * * * * * Example 6. * * * (iii) Note that the total of 15 hours of continuing professional education credit that H completes between January 1, 2011, and December 31, 2013, as well as the 10 hours of continuing professional education credit between January 1, 2014, and December 31, 2016, are not counted toward H’s return to active status and are not taken into account toward the additional hours of continuing professional education credit that H must complete between January 1, 2020, and VerDate Mar<15>2010 17:19 Dec 27, 2011 Jkt 226001 December 31, 2022, in order to be eligible to file an application for renewal of enrollment active status effective April 1, 2023. Example 7. * * * (ii) J completes 5 hours of core continuing professional education credit and 4 hours of non-core continuing professional education credit between January 1, 2014, and October 6, 2014. Because J did not complete the required 12 hours of continuing professional education (of which at least 6 hours must consist of core subject matter) during J’s initial enrollment cycle, J is not eligible to file an application for a return to active enrollment on October 6, 2014, notwithstanding the fact that had J completed such hours between January 1, 2012, and December 31, 2013, J would have satisfied the requirements for renewed enrollment effective April 1, 2014. * * * * * Guy R. Traynor, Acting Chief, Publications and Regulations Branch, Legal Processing Division, Associate Chief Counsel (Procedure and Administration). [FR Doc. 2011–33200 Filed 12–27–11; 8:45 am] BILLING CODE 4810–25–P DEPARTMENT OF HEALTH AND HUMAN SERVICES Food and Drug Administration 21 CFR Part 113 [Docket No. FDA–2007–N–0265] (formerly 2007N–0026) Temperature-Indicating Devices; Thermally Processed Low-Acid Foods Packaged in Hermetically Sealed Containers; Correction AGENCY: Food and Drug Administration, HHS. ACTION: Final rule; correction. The Food and Drug Administration (FDA) is correcting a final rule that appeared in the Federal Register of Thursday, March 3, 2011 (76 FR 11892). The final rule amended FDA’s regulations for thermally processed low-acid foods packaged in hermetically sealed containers to allow for use of other temperature-indicating devices, in addition to mercury-in-glass thermometers, during processing. The final rule was published with one error. This document corrects that error. DATES: Effective March 5, 2012. FOR FURTHER INFORMATION CONTACT: Mischelle B. Ledet, Center for Food Safety and Applied Nutrition (HFS– 625), Food and Drug Administration, 5100 Paint Branch Pkwy., College Park, MD 20740, (240) 205–1165. SUPPLEMENTARY INFORMATION: In FR Doc. 2011–4475, appearing on page 11892, in SUMMARY: PO 00000 Frm 00005 Fmt 4700 Sfmt 4700 81363 the Federal Register of Thursday, March 3, 2011, the following correction is made: § 113.40 [Corrected] On page 11921, in the third column, seventh line from the bottom, in § 113.40(g)(2)(i)(A), the word ‘‘implemented’’ is corrected to read ‘‘instrumented’’. Dated: December 21, 2011. Leslie Kux, Acting Assistant Commissioner for Policy. [FR Doc. 2011–33183 Filed 12–27–11; 8:45 am] BILLING CODE 4160–01–P DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT 24 CFR Part 203 [Docket No. FR–5397–N–04] RIN 2502–ZA05 Federal Housing Administration (FHA): Temporary Exemption From Compliance With FHA’s Regulation on Property Flipping Extension of Exemption Office of the Assistant Secretary for Housing—Federal Housing Commissioner, HUD. ACTION: Notice of waiver extension. AGENCY: This notice announces that 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, 2012. This waiver, which was first issued in January 2010, took effect for all sales contracts executed on or after February 1, 2010, and was extended in February 2011. The waiver is set to expire on December 31, 2011, and therefore HUD is extending the waiver for another calendar year. 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. As a result of the high foreclosures that have been taking place across the nation, FHA, through the regulatory waiver, encourages 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 firsttime and other purchasers and helping SUMMARY: E:\FR\FM\28DER1.SGM 28DER1 81364 Federal Register / Vol. 76, No. 249 / Wednesday, December 28, 2011 / Rules and Regulations mstockstill on DSK4VPTVN1PROD with RULES to stabilize real estate prices as well as neighborhoods and communities where foreclosure activity has been high. While the waiver is available for the purpose of stimulating rehabilitation of foreclosed and abandoned homes, the waiver is applicable to all single family properties being resold within the 90day 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. DATES: Effective Date: January 1, 2012, through December 31, 2012. FOR FURTHER INFORMATION CONTACT: Karin B. Hill, 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 tollfree 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 regulatory section provides that FHA will not insure a mortgage for a single family 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 estateowned (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 VerDate Mar<15>2010 17:19 Dec 27, 2011 Jkt 226001 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 § 203.37a(c). In a final rule published on June 7, 2006 (71 FR 33138), HUD expanded the exceptions contained in § 203.37a(c) to the 90-day time restrictions to include such transactions as sales of single family properties by governmentsponsored enterprises (GSEs), state- and federally-chartered financial institutions, nonprofits organizations approved to purchase HUD Real EstateOwned (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 past few years has led to a rapid rise of homeowners defaulting on mortgages, and consequently an increase 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 continue to 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 (Public Law 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 PO 00000 Frm 00006 Fmt 4700 Sfmt 4700 been rehabilitated and sold under this program. With the home foreclosure rate remaining high across the nation, HUD determined, early in 2010, 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, and 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. The original waiver granted in 2010 was discussed in a HUD Federal Register notice published on May 21, 2010 (75 FR 28633), which solicited public comment. HUD addressed the public comments in the extension of the original waiver published on February 3, 2011 (76 FR 6149). Given that the housing market, although improving, remains in a vulnerable states, and the foreclosure rate, while lower than previously, nevertheless remains high, HUD is extending the waiver for another calendar year. The conditions for the waiver set forth in both the May 10, 2010, and February 3, 2011, Federal Register notices remain applicable and are set out in this notice for the convenience of the reader. While the waiver remains available for the purpose of stimulating rehabilitation of foreclosed and abandoned homes for another calendar year, the waiver continues to remain 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 FHAapproved mortgagee must meet the following conditions: 1. All transactions must be armslength, 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 E:\FR\FM\28DER1.SGM 28DER1 mstockstill on DSK4VPTVN1PROD with RULES Federal Register / Vol. 76, No. 249 / Wednesday, December 28, 2011 / Rules and Regulations 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 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. VerDate Mar<15>2010 17:19 Dec 27, 2011 Jkt 226001 III. Guidance on the Conditions for Waiver Eligibility A. Seller’s Acquisition Cost The seller’s acquisition cost is the purchase price which the seller paid for the property, and the following costs (if paid by the seller): • Closing costs, plus • Prepaid costs, including commissions. The seller’s acquisition cost does not include the cost of repairs that the seller makes to the property. B. Justification and Documentation of Increase in Value If the resale price of the property is greater than 20 percent above the seller’s acquisition cost, the property will be eligible for an FHA-insured mortgage only if the Mortgagee justifies the increase in value. The Mortgagee must verify that the seller has completed sufficient legitimate renovation, repair, or rehabilitation work on the subject property to substantiate the increase in value by retaining supporting documentation in the loan file or by providing a second appraisal. • If the Mortgagee uses a second appraisal: Æ An FHA roster appraiser must perform the appraisal in compliance with all FHA appraisal reporting requirements. Æ The Mortgagee may not use an appraisal done for a conventional loan even if it was completed by an FHA roster appraiser. Æ The Mortgagee may not charge the cost of the second appraisal to the homebuyer. If the Mortgagee has ordered a second appraisal to document the increase in value, the Mortgagee must not use this appraisal for case processing and must not enter it into FHA Connection. C. Property Inspection Report If the resale price of the property is greater than 20 percent above the seller’s acquisition cost, the property will be eligible for an FHA-insured mortgage only if the Mortgagee obtains a property inspection and provides the inspection report to the buyer before closing. The borrower, lender, or mortgage broker (if one is involved in the transaction) may order the property inspection. The lender or mortgage broker may charge the borrower for this inspection. those repairs must be completed prior to closing. After completion of repairs to address structural or ‘‘health and safety’’ issues, the inspector must conduct a final inspection to determine if the repairs have been completed satisfactorily and eliminated the structural or ‘‘health and safety’’ issues. The borrower, lender, or mortgage broker may order the final inspection. IV. 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. V. Period of Waiver Eligibility The waiver that is the subject of this notice remains effective through December 31, 2012, for all sales contracts executed on or after February 1, 2010, the availability date provided by the issuance of the waiver in January 2010, 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. Dated: December 22, 2011. Carol J. Galante, Acting Assistant Secretary for Housing— Federal Housing Commissioner. [FR Doc. 2011–33411 Filed 12–27–11; 8:45 am] BILLING CODE 4210–67–P D. Repairs If the inspection report notes that repairs are required because of structural or ‘‘health and safety’’ issues, PO 00000 Frm 00007 Fmt 4700 Sfmt 9990 81365 E:\FR\FM\28DER1.SGM 28DER1

Agencies

[Federal Register Volume 76, Number 249 (Wednesday, December 28, 2011)]
[Rules and Regulations]
[Pages 81363-81365]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-33411]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 203

[Docket No. FR-5397-N-04]
RIN 2502-ZA05


Federal Housing Administration (FHA): Temporary Exemption From 
Compliance With FHA's Regulation on Property Flipping Extension of 
Exemption

AGENCY: Office of the Assistant Secretary for Housing--Federal Housing 
Commissioner, HUD.

ACTION: Notice of waiver extension.

-----------------------------------------------------------------------

SUMMARY: This notice announces that 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, 2012. 
This waiver, which was first issued in January 2010, took effect for 
all sales contracts executed on or after February 1, 2010, and was 
extended in February 2011. The waiver is set to expire on December 31, 
2011, and therefore HUD is extending the waiver for another calendar 
year. 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. 
As a result of the high foreclosures that have been taking place across 
the nation, FHA, through the regulatory waiver, encourages 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

[[Page 81364]]

to stabilize real estate prices as well as neighborhoods and 
communities where foreclosure activity has been high. While the waiver 
is available for the purpose of stimulating rehabilitation of 
foreclosed and abandoned homes, 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.

DATES: Effective Date: January 1, 2012, through December 31, 2012.

FOR FURTHER INFORMATION CONTACT: Karin B. Hill, 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 regulatory section 
provides that FHA will not insure a mortgage for a single family 
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 past few years has led 
to a rapid rise of homeowners defaulting on mortgages, and consequently 
an increase 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 
continue to 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 (Public Law 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 determined, early in 2010, 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, and 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. 
The original waiver granted in 2010 was discussed in a HUD Federal 
Register notice published on May 21, 2010 (75 FR 28633), which 
solicited public comment. HUD addressed the public comments in the 
extension of the original waiver published on February 3, 2011 (76 FR 
6149). Given that the housing market, although improving, remains in a 
vulnerable states, and the foreclosure rate, while lower than 
previously, nevertheless remains high, HUD is extending the waiver for 
another calendar year. The conditions for the waiver set forth in both 
the May 10, 2010, and February 3, 2011, Federal Register notices remain 
applicable and are set out in this notice for the convenience of the 
reader.
    While the waiver remains available for the purpose of stimulating 
rehabilitation of foreclosed and abandoned homes for another calendar 
year, the waiver continues to remain 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

[[Page 81365]]

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 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. Guidance on the Conditions for Waiver Eligibility

A. Seller's Acquisition Cost

    The seller's acquisition cost is the purchase price which the 
seller paid for the property, and the following costs (if paid by the 
seller):
     Closing costs, plus
     Prepaid costs, including commissions.
    The seller's acquisition cost does not include the cost of repairs 
that the seller makes to the property.

B. Justification and Documentation of Increase in Value

    If the resale price of the property is greater than 20 percent 
above the seller's acquisition cost, the property will be eligible for 
an FHA-insured mortgage only if the Mortgagee justifies the increase in 
value. The Mortgagee must verify that the seller has completed 
sufficient legitimate renovation, repair, or rehabilitation work on the 
subject property to substantiate the increase in value by retaining 
supporting documentation in the loan file or by providing a second 
appraisal.
     If the Mortgagee uses a second appraisal:
    [cir] An FHA roster appraiser must perform the appraisal in 
compliance with all FHA appraisal reporting requirements.
    [cir] The Mortgagee may not use an appraisal done for a 
conventional loan even if it was completed by an FHA roster appraiser.
    [cir] The Mortgagee may not charge the cost of the second appraisal 
to the homebuyer.
    If the Mortgagee has ordered a second appraisal to document the 
increase in value, the Mortgagee must not use this appraisal for case 
processing and must not enter it into FHA Connection.

C. Property Inspection Report

    If the resale price of the property is greater than 20 percent 
above the seller's acquisition cost, the property will be eligible for 
an FHA-insured mortgage only if the Mortgagee obtains a property 
inspection and provides the inspection report to the buyer before 
closing. The borrower, lender, or mortgage broker (if one is involved 
in the transaction) may order the property inspection. The lender or 
mortgage broker may charge the borrower for this inspection.

D. Repairs

    If the inspection report notes that repairs are required because of 
structural or ``health and safety'' issues, those repairs must be 
completed prior to closing. After completion of repairs to address 
structural or ``health and safety'' issues, the inspector must conduct 
a final inspection to determine if the repairs have been completed 
satisfactorily and eliminated the structural or ``health and safety'' 
issues. The borrower, lender, or mortgage broker may order the final 
inspection.

IV. 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.

V. Period of Waiver Eligibility

    The waiver that is the subject of this notice remains effective 
through December 31, 2012, for all sales contracts executed on or after 
February 1, 2010, the availability date provided by the issuance of the 
waiver in January 2010, 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.

    Dated: December 22, 2011.
Carol J. Galante,
Acting Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. 2011-33411 Filed 12-27-11; 8:45 am]
BILLING CODE 4210-67-P