90-day no-flip rule for FHA loans is coming back


90-day no-flip rule for FHA loans is coming back

WASHINGTON – Oct. 21, 2014 – According to real estate writer Kenneth Harney, the Federal Housing Administration (FHA) plans to reintroduce a rule it put on hiatus during the national housing recovery: After Dec. 31, investors will once again have to own a property for at least 90 days before reselling it at a higher price if they use agency financing.

The government waived the 90-day mandatory ownership period in 2010, and FHA estimates that about 102,000 properties were renovated and resold under the waiver.

However, the 90-day rule was designed to protect consumers from con artists who flipped homes at hyper-inflated prices after completing only surface repairs and doing shoddy construction.

According to FHA, the waiver has "done its job" by stimulating growth and stabilizing prices. But "inherent dangers exist when there are no minimum ownership periods for flippers," according to Harney.

Some investors and lenders hate to see the waiver end.

"The sad part is the majority of these properties were improved and [located] in underserved areas," says First Mortgage President Clem Ziroli Jr. "Having a rehabilitated house available to these borrowers" helped them get previously dilapidated homes that were made safe for occupancy."

Colonial Mortgage Group President Paul Skeens, meanwhile, warned that, as a rehab investor, he will have to ask more money for the homes he renovates and resells.

"FHA seems dead set on reverting to its pre-bust flipping restrictions," says Harney. "Financing will still be available, but selling prices of the end product – rehabbed houses for moderate-income buyers – are almost certain to be higher."

The new standard is slated to take effect after Dec. 31.

Source: Washington Post (10/18/14) P. 6; Harney, Kenneth R.

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