FHA anti-flipping waiver now good through 2014

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To help keep foreclosures moving through the home sales pipeline, the Federal Housing Administration (FHA) has, for the fourth time, extended a rule to make it easier for investors to “flip” properties.

Flipped properties typically are purchased, fixed up and quickly resold to make a profit.

Foreclosures are falling but, along with short sales, still comprised 22 percent of homes sold in November, down from 29 percent a year ago, according to the National Association of Realtors.

RealtyTrac put the share of foreclosure-related sales at 19 percent of all U.S. residential sales during the third quarter — the same level as in the third quarter of 2011.

In 2003, with the onset of skyrocketing home prices, the FHA banned flipping FHA-insured properties within 90 days of their purchase to prevent flippers from targeting unsuspecting borrowers with artificially-inflated prices, actions that contributed to unsustainable home price increases.

However, recognizing how much worse off the housing market would be without investors flipping, the FHA first waived the anti-flipping rule in 2010, even though some related problems persist.

For investors, a quick turnaround is key to yielding a profit. Time subtracts from their profit by adding carrying costs to properties they’ve already plowed renovation dollars into.

Reports also reveal market savvy investors are better at moving properties than lenders who are often encumbered by self-wrought federal scrutiny and their own in-house failures.

The FHA has now extended the waiver four times, this time through 2014.

The latest anti-flipping waiver extension comes with the same requirements as prior extensions.

To use FHA financing to buy a HUD- or bank-owned property, or a property resold through private sales and resell it within 90 days, the buyer-turned-seller (investor) must:

• Engage in an “arm’s-length transaction,” a transaction that has no identity of interest between the buyer and seller or other parties participating in the sales transaction.

• Document the justification for any increase in price when the sales price is 20 percent or more above the acquisition cost. The lender in such transactions must also meet specific controlled conditions.

• Have a property inspection conducted, if the sale price is 20 percent or more of the the acquisition price. Should the inspection discover health and safety repairs are necessary, those repairs must be completed before the sale closes.

Get the full fedeal register filing here: “Federal Housing Administration (FHA): Temporary Waiver of FHA’s Regulation on Property Flipping; Extension of Waiver”

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