The FHA has suspended a rule that discouraged speculators from “flipping” a home — buying cheap and selling dear within 90 days to an owner occupant who finances through FHA.

The purpose was to prevent speculators from artificially inflating values. How times change! Inflating home values is now “a consummation devoutly to be wished” by the government.

So starting February 1 and ending January 31, 2011 the FHA will insure loans on properties selling within 90 days of their acquisition. It won’t insure loans on properties that show evidence of multiple flips — one within the past year is allowed — and lenders will have to provide a second appraisal when the seller’s profit exceeds 20%.  Improvements to the property will count as part of the seller’s cost.  Also, the property must have been openly marketed (for example, through the MLS) and the seller must actually hold title to the property.

The purpose is to encourage investors with cash to buy, rehab and resell bank owned foreclosures to people who will inhabit them without requiring that they sit vacant (and subject to vandalism or other value deterioration) for ninety days.