There is a positive dynamic occuring in our market place. First Time Homebuyers needing Downpayment Assistance (and somewithout that need) using FHA Mortgages are in an arena competing with Cash Investors for the most inexpensive homes in our market. I see this as a positive because this arena is truly solidifying a floor to our market; some properties are getting multiple offers with a higher contract price than the listing price. Many of these homes are bank owned properties. Now the stage is set for my commentary.
On June 13th, 2008 I received some news that made my day! "FHA has temporarily suspended the 90 day flip rule" was the article I read. I thought to myself "FHA is on board with moving the inventory in cities hit hard with foreclosures". I thought I was going to read about a make sense maneuver that was going to match more buyers to more sellers. I was wrong.
What FHA did was expand an exception already in place. The exception, in summary, says that Federally & State Chartered Banks can sell homes acquired in the first 90 days when taken back by foreclosure. What FHA did was allow these same lenders to transfer title to "property disposition companies" they normally just hire as an asset mangement company, and they would be allowed to sell the foreclosed home...huh, how does that help our FHA homebuyers? In reality, it did almost nothing! However, it has managed to confuse many of us. For instance, "what is the difference between an asset mangement company a bank owns or employs, and a taxpaying investment company who buys homes at auctions and just happens to sell the real estate?
Do they both move properties? Yes. Do they both help take inventory from a Lender's REO? Yes. Are the both "property disposition companies"? Yes. Are they both "flipping" the property? Yes. Are they both hleping our market? No!! Asset Mangement Companies sell "as is" properties well below market price. In many cases, the investment companies clean, remodel, and fortify wrecked homes they later sell for a profit. Are the "end users" of the property done a valuable service? Yes. Did they still get a good deal? Yes. Was the sales price higher than if an Asset mangement company sold it? Yes. Somebody please explain to me why a bank's "preferred" asset management company gets to sell to FHA buyers & an investment firm doesn't.
My frustration comes because this whole mess in the housing industry came about because there were not enough "end-users" of the properties that were being "speculatively" built, bought, and sold. Back in 2005, there were kids who are now in there early & mid twenties coming to the table with legitimate income, assets, and credit . They have plausible offers on homes they plan on living in. They need FHA Mortgages!
FHA needs to temporarily suspend the flip rule in it's entirety. Let the free market take over, and let's get this damn inventory sold by the people who want to buy it!
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