HUD Extends FHA Anti Flip Rule
This article announced that HUD has extended the suspension of the FHA Anti Flip rule. This rule prohibited the FHA from insuring a mortgage on homes that were owned by the seller for less than 90 days. It was passed in efforts to speed to sale of foreclosed homes. The suspension has been extended until 2012.
This is good news for investors as it is estimated that 30% to 50% of home loans are FHA insured as buyers are drawn to these loans due to the lower down paymnets required. There are a number of restrictions, the most troubling being that homes still cannot sell of more than 20% of the invetor’s purchase price, plus the cost of any renovations.
I work with a lot of investors and when this suspension first came out I perceived it to be great news. Unfortunately, I soon found out that, since this is not a mandated rule, the majority of lenders did not change their internal policies and still required a property to be seasoned. After a couple of problems occured with financing, we have determined that we have to highly scrutinize any offer that includes FHA financing. Though I know a number of mortgage brokers that are able to secure FHA financing under these new rules, many of my fellow realtors (and their lenders) are not aware of this problem.
The other problem we have encountered is that due to the low values in our area many of our properties have to be purchased with an ROI over 20% in order for the transaction to make business sense. In these cases, a second appraisal is required. At least in my market, appraisals can be dicey at best and tend to be “all over the map” in many cases. Fortunately for me, the community in which I do 90% of my business qualifies for USDA financing . These are loans restricted to rural areas and require no down payment in most cases.
I;m hoping the more and more lenders finally get on board now that the suspension has been extended. In my opinion, an investor should not be penalized if he/she is able to purchase a property well below market value and “flip” it at a price that is well within current market values. Let’s face it. If the home is priced too high, buyers won’t buy it. An investor should not be penalized for trying to make a honest living by taking advantage of declining home values.
I understand why the rule was adopted in the first place but the government needs to stay out of matters such as these and maybe out of the housing industry altogether!
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