FHA Home Flipping Waiver About to End

[Sam Elder]

In an effort to stimulate repairs and sales in neighborhoods hard hit by the housing crisis and recession, the FHA waived its standard prohibition against financing short-term house flips.

Before the policy change, if you were an investor or property rehab specialist, you had to own a house for at least 90 days before reselling — flipping it — to a new buyer at a higher price using FHA financing. Under the waiver of the rule, you could buy a house, fix it up and resell it as quickly as possible to a buyer using an FHA residential loan — provided that you followed guidelines designed to protect consumers. Since then, according to FHA estimates, about 102,000 homes have been renovated and resold using the waiver.

The reason for the upcoming termination? The program has done its job, stimulated billions of dollars of investments, stabilized prices and provided homes for families who were often newcomers to ownership. However, even though the waiver program has functioned well, officials say, inherent dangers exist when there are no minimum ownership periods for flippers. In the 1990s, the FHA witnessed this firsthand when teams of con artists began buying run-down houses, slapped a little paint on the exterior and resold them within days — using fraudulent appraisals. Their buyers, who obtained FHA-backed loans, often couldn't afford the payments and defaulted. For these reasons, officials say, it's time to revert to the more restrictive anti-quick-flip rules that prevailed before the waiver: The 90-day standard will come back into effect after Dec. 31.

Source: Ken Harney, The Nation's Housing