(1/4/2012) - To help keep foreclosures moving through the distressed
property pipeline, the Federal Housing Administration (FHA) has again made
it easier for investors or others to "flip" properties.
With certain restrictions, investors can continue to enjoy an FHA waiver on an
anti-flipping rule that forbade buyers to use FHA-insured financing to buy
and then quickly resell or "flip" distressed properties. The latest
extension on the waiver runs through the new 2012 year.
"This extension is intended to accelerate the resale of foreclosed
properties in neighborhoods struggling to overcome the possible effects of
abandonment and blight," said acting FHA Commissioner Carol J. Galante.
"FHA remains a critical source of mortgage financing and stability and we
must make every effort to promote recovery in every responsible way we can,"
Galante said.
Investor buys
largely comprised the 38 percent of homes purchased with cash in 2011,
according to HanleyWood's Housing Intelligence Pro, but real estate wheeling
and dealing has not always been welcomed with open arms.
The Federal Reserve Bank of New York's recent study "Real Estate
Investors, the Leverage Cycle, and the Housing Market Crisis," says investor
flipping – buying, fixing up, and quickly reselling with hopes for a decent
profit – helped quickly drive up prices and that contributed to the housing
crash.
The rule was designed to avoid flipping that came with highly-inflated prices some investors used to target
unsuspecting borrowers at the onset of the heyday of skyrocketing
prices.
However, recognizing how much worse off the housing market would be without investors the FHA first waived the anti-flipping rule in 2010 and later extended the waiver through
2011.
Other reports reveal market savvy investors are better at moving properties
than lenders who are often encumbered by self-wrought federal scrutiny and
their own in-house failures.
Since the original anti-flipping waiver went into effect on February 1,
2010, FHA has insured nearly 42,000 mortgages worth more than $7 billion on
properties resold within 90 days of acquisition. FHA says, acquiring,
rehabilitating and reselling properties can often take less than 90 days
without becoming overpriced.
The FHA reasons, given today's soft housing market, prohibiting the use
of FHA mortgage insurance for homes subject to resale within 90 days of
acquisition adversely impacts the willingness of sellers to allow contracts
from potential FHA buyers because they must consider holding costs and the
risk of vandalism associated with allowing a property to sit vacant over a
90-day period of time.
Some critics of the waivers say they've contributed to a new kind of
flipping called "flopping," a scam that targets short
sales, but the FHA has again extended the waiver through 2012.
The latest anti-flipping waiver extension, however, comes with the same
requirements as prior extensions, which tend to guard against flopping.
To use FHA financing to buy a HUD- or bank-owned property, or a property
resold through private sales and resell it within 90 days, the
buyer-turned-seller (investor) must:
• Engage in an "arms-length transaction," a transaction that has no
identity of interest between the buyer and seller or other parties
participating in the sales transaction.
• Document the justification for any increase in price when the
sales price is 20 percent or more above the seller's initial acquisition
cost. The lender in such transactions must also meet specific controlled
conditions.
• Finance only "forward" mortgages, but not Home Equity Conversion
Mortgage (HECM - reverse mortgages) for purchase program.
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