New FHA rules announced January 15, 2010 offer a new approach to mitigating the foreclosure crisis by temporarily suspending a long standing rule against "flipping" that could making it even more difficult to flip a home in the Olympia area.
Last year, Washington State made it more expensive for the Average Joe to do a "Flip." In order to flip a house you have to be a licensed and bonded General Contractor. Some of the reasons given for the changes were the rampant problems with non-licensed contractors doing sub-standard work, and no recourse for the people who hired them. 18.27 is the RCW which regulates the business of Contractors, and requires licensing and fines of non-licensed contractors.
When the homes, often barely renovated, were then financed with high interest loans, buyers were left with worthless properties and inflated mortgages. In 2003, the Bush Administration release a new "anti-flipping" that would stop the predatory lending practice of flipping. This bill provided that the seller of record must be the one who sells the home to the next buyer. More importantly, houses that the seller acquired in the last 90 days would not be eligible for FHA financing; there were additional requirements for appraisal for homes sold within 91-180 days and for documentations of value on a home sold within one year. The rule was softened a bit in 2008 to allow exceptions to the time limits, but it has basically been intact for the past seven years.
Now the US is battling a foreclosure problem that has resulted in a stockpile of distressed properties that need renovation and quick occupancy. Empty, unrenovated homes make a community less eye-appealing as well as pose safety hazards and are an invitation to vandals to drop by and strip them of wiring, plumbing, and appliances even if they are fixed up. Boarded up or empty homes send the message that the neighborhood lacks stability.
A new policy announced by HUD Secretary Shaun Donavan lifts the restrictions for buyers who are likely to buy HUD-owner properties, bank-owned properties, or homes purchased directly from sellers with an eye on "flipping" them - rehabbing them and putting them back on the market. The move, effective for one year starting February 1, 2010, was approved to aid the current foreclosure crisis.
The new program has some restrictions intended to prevent abuse:
•·No sales to little Buddy or to Uncle Joe - sales must be arm's-length
•·Lenders must meet certain criteria if the home is being sold for 20% more than the seller's acquisition cost
•·Only works with forward mortgages
•·Doesn't apply to Home Equity Conversion Mortgages (HECM).
The new law allows "flippers" to fix the homes and take a reasonable profit, after selling the home to someone who may not qualify for traditional financing. The theory is that the move will put homes in the hands of owner-occupants more quickly, which will, in turn, help to stabilize neighborhoods.
This new program is in line with other government programs aimed at helping homeowners who intend to live in their homes. The rule helps them to buy while recognizing the role of the investor who buys a home to rent or renovate before renting. Investors, who can often renovate and resell the home within three months, offer these homes which often appeal to first time buyers who are then unable to find financing. Until now, would-be buyers could not obtain FHA financing on a home owned for less than 90 days. Though the rule spares investors from having to maintain a property for at least three months before they can resell it, the major benefit is to buyers.
For more, information, read the full text of the new policy at the HUD website.
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