In response to the mortgage crisis and recession, investors that were interested in rehabilitating a home quickly, under 90 days, using federally-insured low-down-payment mortgage money were granted a waiver to do so. Prior to this waiver, investors interested in using FHA loans to fix-up and sell a house had to wait 90 days until they could sell the house. Under the waiver the investor could fix it as quickly as they wanted and sell it to a new buyer at a higher price using FHA financing. The waiver will come to an end on December 31, 2014.
The waiver has allowed for approximately 102,000 homes to be sold within this shortened time frame. The waiver has allowed the housing turn-around to happen at an accelerated pace, affording for lower turn around costs and thus better access to moderate income buyers.
The anti-quick flip rules were put into place due to fraud and abuse in the FHA system. In the 1990s, FHA saw teams of scam artists that would buy a house in disrepair, slap some cosmetic fixes onto it, get a false appraisal done, and advertise that much more was new or updated than actually was. Buyers then were paying more for these homes than they were actually worth.
Unfortunately, it is a double edged sword. While the anti-flipping restrictions can lower the likelihood of predatory investors, it also causes undue extra expenses to incur that are passed onto the moderate income buyers and in-turn can price homes out of their reach. An experience and qualified investor can often properly rehab a home within 30-60 days. The excess time to hold, pay for, insure, etc. is an unneeded extra expense and ties up the investment capital needed to do more rehabs in a given time period.
With FHA endorsed loans projected to be about 565,000 this year down from a normal year of between 800,000 – 850,000, a more than 30% decrease, there is a lot of pressure on the entry level market. There must be a happy medium. A shorter time frame, 45-75 days would be an option, with more emphasis on regulatory and punitive policies to find and punish the con-artist and their associates.
If you have been victim to this, have ideas about how to remedy the situation, further information, or anything else to add, please leave a comment.