Tuesday, May 19, 2015

FHA Set To Re-institute Quick-Flip Restrictions

11/14/14 - The Federal Housing Administration, a federal agency involved in providing mortgage loans to real estate investors, is set to reinforce restrictions that were lowered in 2010 in an effort to help the weak housing market. These restrictions set a minimum of 90 days for investors who wish to buy a home and “flip” it, by fixing it up and reselling it. The 90 day period between buying and selling is meant to prevent the selling of poorly-fixed houses for “hyper-inflated” prices. On the other hand, forcing flippers to hold onto a house for 90 days raises their costs, which they then have to incorporate into their selling price. An article by Kenneth Harney of the L.A. Times investigates the positive and negative aspects of the FHA's restrictive 90-day flipping period.

By waiving the 90-day flip period in 2010, the FHA enabled investors to buy, fix, and sell houses quickly and at lower cost, thus allowing first-time home-buyers to more easily find homes in a lower price range. These quick-flips benefited both investors and buyers, lowering prices across the board. Because of the decreased restriction, over 100,000 homes were revitalized and sold, thus improving the housing market.

This improvement is the reason for the FHA's reinstitution of the 90-day flip period. The waiver program has done what it was meant to do: it stimulated home sales, thus stabilizing the market and allowing newcomers the chance to become home-owners. The program has worked relatively well so far, but such a program always has its possible dangers.

In the past, before the 90-day period existed, investors would commonly resell seemingly well-maintained houses, which were nothing more than run-down homes with a fresh coat of paint. This would lead to buyers defaulting on their mortgages, and the FHA would be forced to cover the losses. By forcing investors to take at least 90 days in fixing the houses for resale, the sellers are encouraged to actually do a decent job on the construction.

Whether the restrictive 90-day period is a good or bad thing is a matter of opinion. Yes, forcing flippers to hold onto a property for longer than they need to would raise sale prices, but allowing quick-flippers to sell dilapidated properties at synthetically-high price would also hurt the housing market. The main point addressed in Harney's article is this: whether you like it or not, the FHA has made its decision. The waiver program will stop at the end of December, and the 90-day resale period will come back into practice at the beginning of 2015.

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