Assist2Sell

The Federal Housing Administration is temporarily lifting an "anti-flipping" rule, allowing borrowers using government-insured loans to be more competitive in bidding on foreclosed properties recently purchased from banks and even the government.

The Department of Housing and Urban Development's anti-flipping policy prohibits FHA financing on purchase transactions where the seller has owned the property for only 90 days. HUD found this policy blocked potential FHA borrowers from taking advantage of quick resales of real estate owned. REO sellers, generally, are unwilling to go with FHA borrowers because of holding costs and vandalism risk during the 90-day holding period. FHA is lifting the 90-day rule for one year starting February 1. FHA borrowers have "often been shut out from buying affordable properties," said FHA commissioner David Stevens. "This action will enable our borrowers, especially first-time buyers, to take advantage of this opportunity." FHA has been burned by property flipping scandals before. This time around it insists that all sales must be arms-length transactions with no evidence of flipping in the previous 12 months. If the resale price is 20% higher than the REO sales price, the lender has to provide supporting documentation and a second appraisal in some cases.

It’s about time!  I applaud the FHA for finally using some common sense. This “anti-flipping” rule was having a negative effect on everyone in the market.  The majority of today’s buyers are using FHA loans to buy homes. Many investors are turning down FHA buyers due to the 90-day rule, or they have to extend the closing period to reach the 90 days, which raises holding costs. Eventually these costs get passed onto the buyer.  A 90-day holding period is doing nothing but extending the transaction.

I’ve long said, to get this market cleaned up we are going to need investors.  Banks are not in the real estate business; they are in the money business.  Investors are the best group to buy up foreclosed properties, fix them up, and sell them or rent them.   Investors have the knowledge and local resources to get the job done quicker and more cost effectively than banks.