FHA Makes Exception to Anti-Flipping Rule For Foreclosed Properties

[moh malekpour]

http://www.housingwire.com/2008/06/...anti-flipping-rule-for-foreclosed-properties/

Bush administration officials on Friday said they had made a major change to existing U.S. Department of Housing and Urban Development regulations for mortgages endorsed by the Federal Housing Administration, lifting a key anti-flipping provision that lenders and disposition firms have long said limits their ability to resell distressed real estate.

HUD officials said a newly-introduced temporary policy will now extend government-backed mortgage insurance and allow for the immediate sale of vacant foreclosed properties. FHA regulations currently prohibit insuring a mortgage on a home owned by the seller for less than 90 days, a limitation designed to prevent property flipping activity

The new plan is going to actively encourage flippers to buy HUD homes with FHA loans and resell them in less than 90 days to homebuyers. They think that this policy is going to reduce the number of foreclosures, improve the neighborhood and help homebuyers costs who wants to buy homes. How this plan is going get the neighborhood in better shape and reduce the number of foreclosures and help homebuyers costs when the HUD is actively bringing a flipper in between the HUD homes and JOE homebuyer? The profit that the flipper is going to make and sometimes it has to be 10 to 15% is going to be paid by the buyer. It is like to say that appraisals done thru AMC are going to cost less for the borrowers. The middleman never saves money for the consumer.

 

[ghrousseau]

http://www.housingwire.com/2008/06/...anti-flipping-rule-for-foreclosed-properties/

The new plan is going to actively encourage flippers to buy HUD homes with FHA loans and resell them in less than 90 days to homebuyers. They think that this policy is going to reduce the number of foreclosures, improve the neighborhood and help homebuyers costs who wants to buy homes. How this plan is going get the neighborhood in better shape and reduce the number of foreclosures and help homebuyers costs when the HUD is actively bringing a flipper in between the HUD homes and JOE homebuyer? The profit that the flipper is going to make and sometimes it has to be 10 to 15% is going to be paid by the buyer. It is like to say that appraisals done thru AMC are going to cost less for the borrowers. The middleman never saves money for the consumer.

Moh,

These loans still require two appraisal reports. Also, I have yet to see movement on the investor side of the market regarding the guideline changes by FHA. Most investors at this time still have the 90 day seasoning requirement on properties. The only exception is bank owned or govt owned properties coming back on the market after foreclosure. I actually think this is a good thing because we are starting to see too many REO properties needing repairs. I would rather see investors buying the properties at a discount and rehabbing them prior to sale. A good example is down the street from me: There is a bank owned property where the previous owners tore out the kitchen cabinets, fixtures, and floor coverings. An investor could take care of those items at a lower cost than the bank. The property would be listed at market price. Now instead, we have one property listed for $48,000 below market just as the summer selling season hits within a week of three sellers putting their homes on the market. The double whammy is that agents won't show this property unless the buyer is all cash because no one will loan on this property without making those repairs. Many of the bank owned properties just sit with no open houses and a bare minimum of upkeep. As long as we can get two appraisals and keep some strict underwriting guidelines, I think it will be ok.

 

[moh malekpour]

ghrousseau,
I am looking at it objectively but you are looking at it subjectively. Even if you look at it subjectively and hope that it is going to create two appraisals, who do you think is going to get those appraisals? The Skippy.
In my market, the one who is getting all assignments these days, is the skippy. Why? because of low fee, $110 for drive by, $170 for interior of all kinds of properties and 24 hours turn time. Some of these appraisals are complex and some are multi million dollars homes. No competency, no experience, no quality of work no E & O insuance is required. The only requirement is lower than the lowest fee and faster than the fastes turn time that any appraiser has done so far. .

 

[athome77]

I have to ask...

What does FHA policy have to do with appraisal fees?

Just wondering.

 

[moh malekpour]

I have to ask...

What does FHA policy have to do with appraisal fees?

Just wondering.

Did you read the article? According to the article, FHA encourages the flippers to buy HUD REOs with FHA Loans. Some of those REOs needs repairs and some don't but flippers by default want to make a quick buck by selling those homes above the market value to uninformed home buyers. Who do you think their lenders are going to ask to appraise those properties? The AMC, and who do you think the AMC is going to send to do a drive by on those properties? , the Skippy; and how much do you think they are going to pay the Skippy to do the job? $110.

 

[athome77]

Guess I didn't see the part that says FHA is encouraging selling homes above market value to uninformed home buyers and that the appraisals will be done through AMCs. Also missed the part that says FHA is now accepting drive-by appraisals. I will give it another read.

 

[moh malekpour]

Guess I didn't see the part that says FHA is encouraging selling homes above market value to uninformed home buyers and that the appraisals will be done through AMCs. Also missed the part that says FHA is now accepting drive-by appraisals. I will give it another read.

No, that is not what I said. Please read it again. I said, FHA policy is encouraging FLIPPERS to buy HUD REOs with FHA loans and sell them to home buyers. There has to be 10 to 20% profit for FLIPPERS to do that and one way to make a profit for the FLIPPERS is to buy low and sell high. and if the sell is too high, it requires an appraiser who can support that high price.

 

[Mztk1]

I read it differently than you Moh.

Right now, let's say Countrywide forecloses on a house and they put it in trust with US Bank, NA, a very common thing. If this house transferred to the bank within 90 days (or to the disposition firm who is US Trust, NA) and a buyer comes along to purchase it, they cannot use FHA financing because of the anti-flipping clause. It is the bank or its trustee that is being considered a "Flipper" by FHA/HUD policy and that is what is being changed.

This is going to remove the anti-flipping clause for one year but ONLY for properties in foreclosure being sold by the bank (perhaps Countrywide) or the disposition firm (US Bank, NA in my example, ADM is another one). But they can only sell to buyers intent on purchasing the property to live in. Investors are NOT disposition firms. Usually such a firm is holding the house in trust, caring for the house and ensuring its sale for the lender.

This has been a big problem in my markets. Most people in these bad economic times have inferior credit, need the 3% gift programs to come up with the downpayment, and the lenders are no longer loaning competitively on "B" paper nor offering 97% finaning plus 3% down gift. So the buyers resort to FHA. But these buyers cannot buy foreclosed properties with FHA financing because the foreclosure is priced to sell, and normally does, within 90 days, negating FHA use. The way the FHA requirements are written, in our example, Countrywide (or its assigns) is considered the Flipper and is not allowed to sell to a buyer who is using FHA Financing.

The HUD policy is flawed and it is a good thing it is being changed. It will create more affordability and increase the demand for these foreclosure properties.

 

[moh malekpour]

Jim,
I don’t know about Florida but here in California, we have trustee and trust deed for mortgage loan transactions. The lender is called the beneficiary who collects the payments or if the loan is sold to investors, the servicer collects them and sends them to investors. The trustee is the one who holds the note for the life of the loan. The trustee can be a bank, or another institution, which remains passive until loan is paid off; the property is foreclosed, sold or refinanced. In any of those cases, the trustee will be notified by the beneficiary or servicer about the situation. If the loan is paid off, the trustee will send the trust deed note to the homeowner upon the notification of the beneficiary. If it it is in default, the trustee transfers the deed to the lender or the beneficiary after the foreclosure procedure but sometimes, the trustee will be authorized to sell the foreclosed property when it is still in trust deed and has not been transferred to the beneficiary. For example, countrywide could be the lender or loan servicer but the trustee could be the US bank. Countrywide may let the trustee sell the property while is still in trust prior to transferring the title back to countrywide because it is cheaper and faster. I don’t think in this case the trust or the trustee is considered a Flipper. It is just the holder of the note who is authorized by the beneficiary to sell the property.
But opening the gate of FHA loans to FLIPPERS for quicker sales may increase the sales of those foreclosures but is not going to help low-income homebuyers. If low-income homebuyers are not qualified for FHA loans during purchasing REO homes, they are not going to be qualified for the same loan when they are buying from Flippers at higher prices.

 

[RSW]

Jim,

Isn't is possible for an investor to use the 203 (k) program to purchase and repair those homes. I think an investor can have up to 3 of these at a given time through the 203 (k) program.