FHA 90 Day Anti-Flipping Rule Under Attack

Real Estate Agent with 1st Action Real Estate

carIn addition to the Action Items summarized in the previous article, CAR Legislative Agenda Shapes Up, there was another Action Item that came before the 526th Board of Directors session on October 10, that being a motion from the Real Estate Finance Committee. 

By way of background, here's a brief primer on how things happen at our state association level. Any member can bring forward an issue through their local association representatives for consideration at the state level. The matter is brought into the committee structure so that a decision can be made on whether the matter is appropriate, whether the impact is significant and what action should be taken. I mean, face it - Just because you've got a beef about a local lockbox issue or had a problem with some lenders short sale negotiator may not qualify the issue for consideration by a state committee. 

If the committee determines the issue is of sufficient import to tackle it, it will be placed on the agenda for discussion along with supporting documentation. The committee will then determine what, if any, action should be taken.

Should they decide to recommend some form of action they will determine whether they will go forward with a request to SPONSOR a bill, SUPPORT a bill that's already in process or just ask CAR to devote some staff time to further research the most appropriate course of action. That recommendation, in the form of a motion or report, will then proceed from the originating committee to a policy committee, generally the Legislative Committee. That committee can decide to approve the committees motion, oppose the motion, or draft an amended version. One or both motions will then proceed to the Executive Committee where they will look at it, approve it for the general session agenda, draft an amended or competing version or, in rare instances, oppose the motion.

One such motion came before the session on Saturday having to do with the current FHA 90 day anti-flipping rule. Originally drafted in 2001, the FHA rule was intended as a consumer protection back in a day when FHA loans, especially in California, were the exception rather than the rule. Due to the FHA's unwillingness to keep pace with escalating prices, again especially in areas like California, the use of FHA mortgages fell to single digits by 2005 contributing to the widespread reliance on sub-prime and other more exotic financing methods. 

Today FHA loans are becoming more the standard again with increased loan limits in our area. This is especially true for first time and other low-to-moderate range buyers, currently estimated to account for as much as 40% of todays loans statewide. The anti-flipping rule, originally intended to prohibit investors/intermediaries from acquiring cheap homes and simply 'flipping' them with no value added thereby driving prices up, doesn't really apply in this market. In fact the argument was made that investors play a very significant role in todays market buying abandoned and stripped foreclosures that would not qualify for an FHA loan to begin with. They rehab the home, often within 30 days, and then put a move-in-ready home on the market (at market price, not inflated). But 40% of buyers who might otherwise qualify for that home with an FHA loan cannot because of the anti-flipping rule.

As you might imagine there was substantial debate at every level of advancement for this motion. But when it came to the floor on Saturday it carried an almost unheard of prohibition - a recommendation from the Executive Committee that the motion be defeated. Why? Their stated reason had little to do with the particulars of the rule or the motion but a general caution that in todays political climate of increasing regulation, they simply didn't think this was a winnable fight.  HONEST.

After about 45 minutes of spirited back-and-forth on the motion before the general assembly, members delivered a stinging rebuke to Exec. Not only was it determined that C.A.R. in conjunction with NAR 'SUPPORT' the elimination of the anti-flipping rule, an amendment was inserted telling CAR we want them to write a letter to the FHA Commissioner and others appropriate parties advising them of our opposition to the rule. NOW. 

It's kind of fun to see the members get riled up sometimes. In an environment that at times resembles a convention of rubber stamp politics as usual, passion can carry the day. Enough of our member/Directors realize the impact this is having on you and your Buyers and decided political correctness and/or lack of balls be damned. This was the right thing to do and we're by God gonna do it. 

Will it result in an immediate change? Not likely. But the message is being delivered. As we continue to define what is the new 'normal market', your Association of Realtors will be at the table assisting in that process. It was a proud moment to stand up and be counted.


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  1. Donald Bradbury 10/13/2009 12:47 PM
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90 day antiflipping rule

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Michael J. Perry
KW Elite - Lancaster, PA
Lancaster, PA Relo Specialist

If Buyer's Agents would do their job , which is to protect the interests of their clients above all (including their own economic needs for a commission!!!) we would have not needed this flipping rule in the first place !!!

Oct 13, 2009 01:18 AM #11
Susan Haughton
Long and Foster REALTORS (703) 470-4545 - Alexandria, VA
Susan & Mindy Team...Honesty. Integrity. Results.

Are government regulations there to protect the consumer or pretend to protect the consumer?  Because usually the more involved the government gets, the worse the outcome!  This is a great example...and once the genie is out of the bottle, it's virtually impossible to put it back in.

Oct 13, 2009 01:27 AM #12
Kathleen Daniels
KD Realty - 408.972.1822 - San Jose, CA
San Jose Homes for Sale-Probate & Trust Specialist

Gene:  Interesting stuff. I am writing an offer today on a property which specifically states: "No FHA."  The property was purchased 5-6 weeks ago ... completely renovated and ready for resale.  Clearly this will limit the number of prospects who may want to buy the property ... however it will not prevent it from selling. Ultimately, if FHA could be used to finance, the fact is that other buyers would likely win out simply because they are stronger financially. 

Oct 13, 2009 02:39 AM #13
Michael Field

I work with a couple of different investors who each time we flip a property we are finding out regs that the government has implicated that we were unaware of...Early on in our "Flip Adventures" this was the first regulation that I was unaware of but now we take this into consideration every time we find a new property. Thanks for the blog.

Oct 13, 2009 02:40 AM #14
Lucien Vaillancourt
Native Sun Realty, Inc. - Jacksonville, FL
Jacksonville Florida Real Estate

Since first time and low income buyers make up the majority of FHA buyers this "anti flipping" rule is hurting the very group the program is designed to benefit.  The type of financing a buyer uses to purchase their home should not limit their choices when selecting the home that suits them best.  As earlier stated it seems that whenever government gets involved in our business people get hurt.

Oct 13, 2009 02:58 AM #15
Courtney Cooper
Team Leader/ Investor for Brand New Keller Williams North Seattle Office - Seattle, WA

Maybe this is why Jeff Lewsi is renovating houses now instead of Flipping Out:)  Good information - thanks for sharing.  I have been watching this one.

Oct 13, 2009 02:59 AM #16
Kyle Jan
Scottsdale, AZ
Phoenix AZ Homes for Sale

The right thing to do is speak up.  Coventional is also making waves about the 90 day flipping rule.  The key is that we all participate in solid business practices and take responsibility for our markets and not allow values to be falsely inflated for the sake of selling a home.

Oct 13, 2009 03:06 AM #17
Aaron Vaughn | Builder | Investor
Conifer Homes - Buda, TX
If the deal makes sense, the cash will follow.

What this rule now prevents is a same-day flip in short-sale situations, since FHA requires a seasoned title. However, if the rule is changed to 30-days, or even 15-days, you could still eliminate the investor same-day flip and yet allow investors who close and fix up property to sell it in a fair and equitable manner.

Oct 13, 2009 03:09 AM #18
Aaron Vaughn | Builder | Investor
Conifer Homes - Buda, TX
If the deal makes sense, the cash will follow.

Lucien: Actually, whenever government DOESN'T get involved in business, people get hurt. Because if business is left to its own devices -- allowed to operate freely without regulation -- consumers will get screwed. Business is always a pragmatist. Business doesn't care about people, just about making a buck.

Oct 13, 2009 03:13 AM #19
Gene perez
Greater Mortgage Solutions & Valley Hills Realty - Santa Maria, CA

this whole market has continued to change the rules

Oct 13, 2009 03:20 AM #20
Stephen Arnold
HomeSmart Elite Group - Scottsdale, AZ

Hello Gene~  Thanks for posting!! This is a touchy one especially here in Phoenix...where the best market is for homes priced under 250K!  Properties that are redone well, staged, and marketed are still selling to non-fha buyers!  I believe that it would still help in the recovery, but the higher end market is the one that needs the most help at this time!! 

Oct 13, 2009 03:25 AM #21
Terkel Sørensen
Real Estate Places - Temecula, CA
Realtor, 951.805.0773 , Bank owned and Short Sales

Good stuff Gene - and thanks for the report, it is much appreciated. This rule is annoying on a good day, it is however, somewhat mysterious how the leadership could decide not to try and work on it... Who is in charge of CAR these days? I know I am not the most involved legislative person out there, but that is just silly. 

Tell me who to call and I will.

Oct 13, 2009 04:25 AM #22
Gene Wunderlich
1st Action Real Estate - Murrieta, CA
Realtor & Legislative Liaison

Lenn & Ken - always count on you for seasoned and rational commentary. Having experienced this from both sides of the table (lender and Realtor®) you echo the prevailing side in our state arguments.

Michael & Aaron - the same argument surfaced - that consumers continue to need 'protection' from unscrupulous 'flippers' today whop are attempting concurrent closing on short sales. Hmmm. How about Realtors® just standing up and refusing them? It's greed and lack of ethics that got us to this point and that's when the knee-jerk legislators and regulators get license to get all up in our business.

Kyle - that was our decision too - the only right thing to do is speak up. We may not get it changed this year but eventually saner minds will prevail (maybe). Just like HVCC - it amazes me that with virtually everybody in the country experiencing hardships as a result (except the Appraisal Service Companies), Cuomo, Freddie & Fannie don't just take a step back and say - ' whoa, not what we intended. Let's do it right.'

Oct 13, 2009 04:29 AM #23
Gene Wunderlich
1st Action Real Estate - Murrieta, CA
Realtor & Legislative Liaison

Thanks Terkel - for now the decision has been made to move this forward. CAR Leadership is normally very in-tune with member needs so this was a bit out of character for them. We've also never been one to back down from a good fight - especially when we're on the right side of the battle. Even when we know the odds are long - that's why this was so unusual.

Oct 13, 2009 05:00 AM #24
Mick Michaud
Distinctly Texas Lifestyle Properties, LLC Office:682/498-3107 - Granbury, TX
Your Texas Lifestyle is Here!

Glad to see some organizational body take a stand that makes sense for once.

Normally, stupid carries the day.

I won't hold my breath.

Oct 13, 2009 05:00 AM #25
Bill Ladewig
LoanOfficerSchool.com - Escondido, CA
Experience Is Your Advantage

Gene, good for CAR and NAR.  Lets hope they can change some minds. 

Oct 13, 2009 05:09 AM #26
Renée Donohue
Savvy Home Strategies Realty, LLC-REALTOR®-Estate-Probate - Las Vegas, NV
Las Vegas Real Estate Broker - www.urLVhome.com

People are buying at the trustee's sales here.  Foreclosures are exempt from the anti-flipping rules so (at the very least) the trustee's flips should be exempt too! 

Oct 13, 2009 06:27 AM #28
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

This is a problem that keeps cropping up for my FHA buyers and limits their options in an already limited market where we have very little inventory in the lower price ranges.

Oct 13, 2009 04:03 PM #29
Harrison K. Long
HomeSmart, Evergreen Realty - Irvine, CA
REALTOR , GRI, Broker associate, Attorney

Gene ... Thanks for this post, and it's good news that C.A.R. board of directors joined with NAR 'SUPPORT' for the elimination of the FHA anti-flipping rule.  Also interesting that there was heated debate resulting in positive action. 

Did I get this right?  CAR must send letter to the FHA Commissioner and other appropriate parties advising them of CAR opposition to the rule?  Sounds good to me.

Oct 14, 2009 04:50 AM #30
Gene Wunderlich
1st Action Real Estate - Murrieta, CA
Realtor & Legislative Liaison

Lots of debate - but the overwhelming sentiment, as reflected in the comment string here, is that in this environment the rule is doing way more harm than good and disenfranchising up to 40% of potential buyers 9in CA) at a time when it's hard enough to qualify for a lower end home.

Yes. The original motion was just for CAR to support NAR in the elimination of the rule. But when Exec got involved members snapped back and said - Alrighty then, not just 'support' NAR but get your suport out there for everybody to see - write a letter to Commissioner Stevens letting him know we support the elimination. I'm sure there will be more discussion next month when Mr. Stevens visits us at NAR.

Oct 14, 2009 05:05 AM #31
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