Fannie Mae Flips
Below is the Policy Modification to FNMA Flips that amended the Selling & Servicing Guides. It was Announcement 04-07 and dated November 8, 2004. Hopefully, this will clear up what is allowed and what is not allowed with regards to FNMA property flips. The crux of the transaction is based on publicly available information. Here is what Fannie Mae has to say about property flipping:
Based on internal analysis and lender feedback, we are revising our underwriting policy. This policy modification is not designed or intended to affect the legitimate business practice of buying real estate at a wholesale or discounted price and re-selling it for the property’s market value. The implementation of our revised underwriting policy should help homebuyers and lenders from becoming victims of predatory property flipping schemes.
Although we encourage lenders to implement this change to our policy as soon as possible, this revised underwriting policy is mandatory for loan applications taken on or after May 1, 2005
We believe the likelihood of fraud or misrepresentation increases when the lender is not able to confirm that the property seller in a purchase money transaction (or the borrower in a refinance transaction) is the owner of the subject property based on publicly available information. Therefore, we are modifying our policy to require the lender to confirm and document in the mortgage file that the property seller in a purchase money transaction (or the borrower in a refinance transaction) is the owner of the subject property when a new appraisal is required. Examples of acceptable documentation include, but are not limited to, the appraiser’s analysis and conclusions in the appraisal report, a copy of a recorded deed or mortgage, a recent property tax bill or tax assessment notice, a title report, a title commitment or binder, or a property sale history report. This documentation is especially important for transactions involving an assignment (or sale) of a contract for sale and/or “back-to-back,” “simultaneous,” or “double” transaction closings (or double escrows) to support the property acquisition, financing, and closing.
As part of the loan origination process, it is critical for the lender to analyze and review the sale(s) of the subject property and the sale price trend in relation to the appraiser’s opinion of value to confirm that they are reasonable and representative of the market.
We believe that confirming and documenting the current owner of the property based on publicly available information as part of the loan origination process will help to ensure a more meaningful analysis of the sale (or transfer) history of the subject property. This policy modification will ensure that lenders and their appraisers understand the quality and timeliness of, identify time gaps in, and assess the accuracy of, their data sources.
Fannie Mae Announcement 04-07 dated November 8, 2004