As Ken Harney put it: "FHA is going to give the opportunity to kill three birds with one stone!"
FHA hoes to help low-downpayment homebuyers, investors who fix-up foreclosures, and communities burdened with too many bank-owned and foreclosed homes - all with one potentially far-reaching policy change.
FHA is revising its long-standing anti-flipping rules starting February 1 and just might score a hit with all three target groups. For many years, FHA has had a strict prohibition: It wouldn't insure a mortgage on a house if the seller had owned it for less than 90 days. The ban was a reaction to fraudulent quick flips of houses that inflated their values far beyond market worth.
The flips were often pure cons - I sat incredulously through one where the flipping seller/agent netted $15,000 at the table, where the seller/agent had acquired a low-cost house in dis-repair, made a few minor cosmetic changes and flipped it to a person who could not read English, didn't know the true value and did not understand they had just been had. I attempted to report the agent, but was told that is was all legal and within accepted guidelines.
As with many of those situations, the buyer defaulted quickly, leaving the FHA with a foreclosed house on its books and a loss to its insurance funds. The FHA maintained its 90-day anti-flipping rule through much of the past decade. But now, it is suspending the policy, at least for a year.
So, there are investors who will do the right thing in providing adequate improvements before re-selling. I suspect there are just as many who will revert to the past practice of completing cosmetic repairs, attempting to mask major issues to get by the home inspector (if one is used), the appraiser and stiffing a buyer who cannot afford to do substantial repairs.
How do we not repeat these heinous transactions?
Dave Rosenmarkle
Broker/Owner
Highland Realty
Arlington, VA 22207
703-538-2566
davidrose@mris.com
www.HighlandAgents.com
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