1. C O A L I T I O N C O R N E R Coalition Corner: Business training tools for HR staff, real estate licensees and other service professionals in the relocation and real estate industries HUD’s Single-family Mortgage Insurance Guidelines (Exemption from property flipping provisions for relocation transactions) Tine K. H. Dickey, CRP, GMS and Larry L. Sontag, CRP, Fidelity Residential Solutions, Inc. © 2008, Worldwide ERC ® Coalition

2. C O A L I T I O N C O R N E R Program objectives This program supplements an editorial feature in Worldwide ERC ® ’s Mobility magazine This segment will: –Introduce users to some basic facts about the U.S. Department of Housing and Urban Development’s (HUD’s) single-family FHA- backed mortgage loans –Explore some issues connected with FHA loans and relocation properties; specifically section 24 CFR 203.37a, as it relates to property “flipping” restrictions –Provide users with the specific relocation exemption language from HUD’s anti-flip provisions to ease any potential challenges or delays to FHA loan approvals in relocation transactions

3. C O A L I T I O N C O R N E R Introduction In the 1970s and 1980s, the United States Department of Housing and Urban Development’s (HUD’s) Federal Housing Administration (FHA) mortgage loans were popular among borrowers with less than 20 percent of the purchase price to put down, and/or little or blemished credit At the same time, savings and loans institutions made the majority of mortgage loans and held them in their asset portfolios In the late 1980s, many savings and loans institutions failed, and the Resolution Trust Corporation (RTC)’s government division was formed Today, we are witnessing similar patterns as commercial banks and lenders are struggling, and the pendulum is shifting back toward greater use of FHA-backed mortgage loans

4. C O A L I T I O N C O R N E R A relocation-specific challenge There are provisions in HUD’s policies to prevent the practice of “flipping” – or the process by which a speculator contracts for the sale of a house, then either resells it prior to the closing date, or shortly thereafter at a price significantly higher than the purchase price (See Property Flipping Policy in 24 CFR 203.37a and Mortgagee Letter 2006-14) “Flipping” was common in the housing boom period, and was often a product of mortgage fraud An increasing number of borrower’s lenders are refusing to approve loans wherein a third party relocation management company (RMC) is the seller, based on the assumption that the transaction is a “flip”

5. FHA Guidelines Mortgagee Letter 2006-14 summarizes the relevant restrictions as follows: 1) Only owners of record may sell properties that will be financed with FHA insured mortgages 2) Any resale of a property may not occur 90 or fewer days from the date of the last sale to be eligible for FHA financing* 3) Additional documentation to validate the property’s value is needed on resales occurring between 91-180 days after the original sale, and where the new sales price exceeds the previous sales price by 100% or more *NOTE: HUD has been tasked by the federal government with a key role in the current weakened housing market, and, in order to make more FHA mortgage insurance funds available, in June 2008 it waived the 90 day requirement for a period of one year with regard to sales of properties acquired by mortgagees, whether sold directly by the mortgagees, by their subsidiaries, or by vendors to whom they have transferred titles to properties for the purpose of effectuating sales of those properties.

6. C O A L I T I O N C O R N E R FHA Guidelines: Relocation Exemptions Following Worldwide ERC ® ’s discussions with HUD during the public comment period before the adoption of their final rules, HUD exempted from the property flipping rules properties sold by HUD through its Real Estate Owned (REO) activities, new homes being sold by builders and properties being sold by relocation companies and the property owner’s employer as part of a relocation

7. C O A L I T I O N C O R N E R FHA Guidelines: Relocation Exemptions The specific language of Mortgagee Letter 2006-14’s relocation exemption is worded as follows: –“sales of properties purchased by employers or relocation agencies in connection with the relocation of employees.”

8. C O A L I T I O N C O R N E R Additional Relocation Information Ben Johnson, director, Denver Homeownership Center (HOC), FHA, HUD, provided the following additional information for relocation professionals: Regardless of how the deeds are prepared, as long as the RMC is selling the property and has an exclusive contract with the employer of the seller, and not the employee, it meets the exception guidelines

9. C O A L I T I O N C O R N E R HUD made favorable changes to its anti-flipping provisions to address the complexities of relocation transactions In transactions involving FHA financing, the time restriction on how long the seller must be in title is often what causes approval to be denied during the underwriting phase Relocation professionals can help speed and ease the process by providing copies of Mortgagee Letter 2006-14 and the relevant exceptions to underwriters and all other parties involved Copies can be found at www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/06- 14ML.doc www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/06- 14ML.doc Summary

10. C O A L I T I O N C O R N E R In Conclusion… In reaction to current economic, housing marking, credit and lending challenges, Congress is continually exploring solutions and enacting a variety of measures in an attempt to stimulate the U.S. and global economies and stem the foreclosure tide An increase in FHA-backed mortgages is one result of the current environment As of November, 2008, the full ramifications to the relocation industry of additional legislative changes, such as the “HOPE for Homeowners’ Act,” for example, are not yet known, but will be continuously monitored and reported on by the Worldwide ERC ® Coalition