It may have been a few days late, but home flippers got an excellent Christmas gift. It wasn’t in the form of a stampede of buyers, instead, it came from the US Department of Housing and Urban Development. On December 28, 2011, they announced that the FHA would provide an extension on the anti-flipping regulation that had been enacted in February 2010.
The point of this extension is to move distressed properties off the market. Everyone hopes that this will will decrease the length of time foreclosed properties sit vacant. Home flippers are given an additional 12 months to move their inventory and take advantage of FHA-insured financing.
Without this anti-flipping waiver, the FHA would not qualify home mortgages if the home had been sold in the previous 90 days. That meant flippers had to wait a full 3 months before they could sell a property they had purchased and renovated. Anyone familiar with the flipping game knows that getting homes off your books quickly is the key to making more money.
In this case, it is also one of the keys to solving the housing crisis in the United States. It appears HUD agrees with the capitalist notions that moving ‘product’, in this case homes, is a great way to improve the economy.
A review of the strict guidelines established by HUD shows that they continue to be serious about preventing predatory home flipping. The part that most flippers will probably need to pay the most attention to is the 20% rule. This portion of the waiver extension essentially says that, if the resale price of a flipped home is greater than 20% of the acquisition cost, then a stricter set of property appraisal guidelines must be followed to ensure the increase in the price of the home is reasonable and not predatory.
It is conceivable that the FHA will end this waiver extension early, but that is likely to depend heavily on how productive the extension turns out to be and whether or not home flippers abuse the system. HUD has also been very clear that they will be keeping a close eye on the number of defaults on mortgages received through this waiver. However, as long as everyone plays fair and follows the rules, they are likely to keep the waiver open throughout the entire year.
When HUD first issued the waiver in February 2010, no one really knew how successful it would be. However, the 11 months it was in use resulted in additional 42,000 properties being flipped and resold within 90 days. That represents roughly $7 billion in property values. This is clearly a trend that HUD and home flippers hope to see continue into 2012.