If you’re thinking of investing in a home that needs a little TLC and then putting it on the market, now may be a great time to do so. The Federal Housing Administration recently extended the temporary waiver the 90-day “anti-flipping” rule, which should allow investors and home “rehabbers” to take advantage of low cost home financing to turn a home for a potentially quick profit.
The original rule, which was imposed by the FHA back in 2003, applied to home owners who held the title to their properties for less than 90 days. Anyone who bought a home through FHA financing had to wait at least 90 days before selling. This was enacted as a way to combat the rampant “quick-flips” that were common during the market’s peak, in which investors would buy discounted and rundown homes, make minimal repairs and then sell them for a steeply marked up price. These “quick-flips” usually involved fraudulent activity by crooked mortgage loan officers, appraisers and other real estate professionals. This caused severe harm to a number of housing markets, as the buyers of these overinflated homes typically defaulted, costing the FHA a great deal in insurance losses and bringing down the values of neighboring homes.
Thanks to the waiver, which continued a policy enacted by the current administration, investors can now have a little more freedom when it comes to determining when to put their newly acquired properties on the market. Not only does this help investors, but it is said to help the real estate industry as a whole. In a Federal Register notice Nov. 29 announcing the extension, Acting FHA Commissioner Carol J. Galante said the objective is to increase “the availability of affordable homes for first-time and other purchasers, helping stabilize real estate prices as well as neighborhoods and communities where foreclosure activity has been high.”
Real estate professionals and investors of single-family homes welcome the extension of the waiver, citing the need to clear out distressed homes that have been sitting vacant in many communities. Although the news of the extended waiver will likely bring a lot of much-needed opportunity to the nation’s housing market, there are some stipulations attached to the rule, to prevent another fraudulent home flipping catastrophe.
Here are a few of the key requirements of the waiver:
- All transactions must be “arm’s-length,” with no identity of interest between the buyer and seller or others involved in the sale.
- Lenders are required to ensure that the seller actually holds title to the property. (In earlier flipping schemes, buy-sell transactions sometimes moved so fast that the seller never even obtained the legal title.)
- There should be no “pattern” of previous flips of the property during the 12 months preceding the transaction.
- In cases where the sales price of the resold property is more than 20 percent more than what the seller paid for it, there must be thorough documentation that justifies the markedly higher resale price. (Receipts for repairs, renovations, upgrades, etc.)
- A second appraisal may be used to show the home’s newer, higher value, but the second appraiser must be selected from the FHA’s roster. If no significant renovations, repairs or upgrades occured and the price is still 20 percent higher than the acquisition, an “appropriate explanation” must be provided by the appraiser for the sudden increase in value.
- Just as before, inspections are required of all the key components of the home’s structure and systems when the price increase exceeds 20 percent. The inspection report must be provided to the purchaser before closing. If the inspection reveals structural or “health and safety” defects, repairs must be completed before the closing and a final inspection must be performed to ensure that the necessary repairs have been made.
Consult with a licensed real estate and mortgage professional to learn more about FHA financing and homeownership.
In other news….
Lenders Put a Stop to Foreclosures Over the Holidays
Was it a case of over exposure to the holiday film classic, “It’s a Wonderful Life” that resulted in the suspension of holiday foreclosures? For whatever reason, CNNMoney reported on December 3rd that bank repossessions controlled by Freddie Mac and Fannie Mae were put on hold until January 2nd, 2013. These holiday eviction hold-offs were a separate action from the other foreclosure freezes for Hurricane Sandy victims. Those homeowners, who are mainly located in NY, NJ, and CT, have been given a reprieve until the end of February.
In the case of the holiday suspensions, Fannie Mae’s Executive Vice President of Credit Portfolio Management, Terry Edwards, stated, “The holidays are a chance to be with loved ones and we want to relieve some stress at this time of year.” A representative from Freddie Mac noted that the suspension did not stop pre or post-foreclosure activities. In years past, this measure was something that many of the nation’s larger mortgage lenders, such as Wells Fargo, Citibank, and JPMorgan Chase, enacted.
To say that the comments that were posted online after the article was printed reflected disgruntlement would be an under statement. To read the entire CNNMoney piece and read reactions in the form of comments, click here: