Call it three birds with one stone: The federal government hopes to help low-down-payment home buyers, investors who fix up foreclosures, and communities burdened with too many bank-owned and foreclosed homes – all with one potentially far-reaching policy change.
The Federal Housing Administration is considering a revision of its long-standing anti-flipping rules which just might score a hit with our investors. For years, the 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 to protect against fraudulent quick flips of houses that inflated their values far beyond market worth.
Those flips often were pure cons: Buyer A would acquire a low-cost house in bad repair, make minor cosmetic changes (some times only to the exterior) and resell within days at a significantly higher price to Buyer B, who was also part of the scheme.
The end game usually went like this: Find a hapless purchaser for the flipped house who would apply for a low-down-payment FHA loan. Typically, that 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 considering suspending the policy, at least for the next year. FHA Commissioner David H. Stevens said the agency is considering providing mortgage insurance for some purchases in which the seller had closed on the property less than 90 days earlier.
So what does that mean to you? The objective will be to speed up sales of renovated houses to first-time and other purchasers. With foreclosures at record levels — an estimated 2.8 million filings last year — many communities are faced with excesses of bank-owned properties sitting unsold, often in poor repair.
So get out there and start looking around, see if there are some deals out there you could quickly turnaround. If this passes, it is an excellent opportunity to get those first time home buyers a property before the $8,000 tax credit expires. Use your InvestorComps account and make sure the property is a deal. Just because it’s cheap doesn’t mean it is a deal. Always do your due diligence!