BiggerPockets

FHA has made use of one stone to hit three birds. It has waived anti-flipping rules while trying to give a flip to drooping sales.

The Federal Government is trying to help those buyers of homes who had made low down-payments, the investors who take over and refurbished foreclosed units as well as the communities weighed down with staggering number of vacant foreclosed homes with this move. This one far reaching change in the policy of the administration is expected to have tremendous impact on all three.

The long term anti-flipping rules of the FHA are going to be changed and become effective soon. There is the possibility that it will serve the purpose of a silver bullet. For many years FHA has always been strict and harsh about flipping – buying and selling properties for profit within 90 days of purchase. The ban had been imposed to stop nefarious operations that inflated the worth of houses beyond ground realities.

A buyer, say Mr. X would purchase a house for a cheap price in need of extensive repairs. X would then make cosmetic changes and within few days of purchase sell it off at a much higher price to Mr. Y. Y would also be part of the operations. A string of such sales and resales would shoot up property prices falsely.

The game would end with the locating of finding a gullible buyer who would apply from the FHA a low down payment loan. Inevitably that buyer would default and FHA would be left in the lurch clutching on to a foreclosed house and loss of funds from its insurance coffers.

During most the last decade the FHA had continued to be strict about its anti-flipping regulation. But now it is waiving it – at least for a year. David H. Stevens said that FHA would once more permit mortgage insurance for some purchases even if a deal had been entered upon within 90 days of the original acquisition.

Stevens explained that the purpose for this change is to expedite sales of refurbished units to first time nest builders as well as other buyers. In 2009 foreclosures had hit a record – 2.8 million postings. Many communities are tottering with extra REOs lying about unsold and often in derelict conditions.

The waiver of the 90 day stipulations would allow the entry of investors to make bids for the units, repair these and sell them to buyers who would now have easy access to FHA financing. The latter takes only 3.5% as down payments.

Original Post: http://www.foreclosure1.com/blog/bank-foreclosures/anti-flipping-rules-waived-fha