Once again the Federal Housing Administration (FHA) has announced that it will be extending its anti-flipping waiver, allowing buyers to continue to use FHA-insured loans to purchase homes that are being resold within 90 days of their purchase[1]. The law was originally enacted in 2003 to “ease fraudulent transactions” in which investors bought houses for low prices and then sold them for higher ones, relying on the fast pace of appreciation and the buying mania at that time to make the house salable at a higher value (FHA believes that these values were inflated) rather than taking time to make improvements to the property. The FHA found that buyers in these transactions were more likely to default on their loans and that incidences of straw buyers and unethical appraisal methods were much higher on flips. As a result, the administration opted to stop insuring home loans on these properties.
However, when the market crashed, real estate needed investors who were willing to buy houses in distress and possibly at discounts. For this reason, the FHA decided to waive its anti-flipping rule in February of 2010, and the waiver has now been extended to December 31, 2011. Sean O’Toole, CEO of ForeclosureRadar.com, says that real estate investors are actually far better for neighborhoods than banks selling REO properties, because “investors who buy at auction do more repairs and leave the properties in better condition…whereas the banks tend to sell them more as-is.”
There are some restrictions on 90-day resales using FHA loans[2]:
1. The property cannot have been flipped before
2. The property must be “fairly and openly marketed for sale”
3. Properties sold for more than 20 percent above acquisition cost may be subject to extra scrutiny
4. Transactions must be “arms-length,” meaning that there is no shared interest between the buyer and the seller
Many real estate investors feel that they have been unfairly demonized for the real estate market crash and that this waiver is not nearly enough to make up for the negativity they have experienced as they do business in the wake of the housing crisis. Do you think that the FHA is being fair in this situation?
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[1] http://www.foxbusiness.com/personal-finance/2011/03/24/fha-insuring-flipped-houses/
[2] http://www.realestateindustrynews.com/real-estate-market/fha-extends-anti-flipping-waiver/
The investors are right that perhaps some were demonized for the real estate crash. Maybe some deserved it and some didn’t. The blame also falls on greedy banks, government meddling and buyers with no money or jobs buying more than they could afford. Not sure how more of the same can be good but we’ll see.
Being a new real estate investor, I think this is the least they can do. Looks like it didn’t work back in 2003. You still are going to have fraudulent people out there but at least the above board investors won’t be demonized as much!
Right on!