FHA Extends Program that Allows Quick ‘Flips’ of Properties

    As the nation continues to wrestle with high unemployment rates and a recuperating real estate market, the Federal Housing Administration (FHA) decided to continue one of its popular programs.

    The FHA extended its temporary waiver allowing loans on quick “flips” of renovated properties past its scheduled Dec. 31 expiration. Real estate flipping is a type of investment in which a person purchases an undervalued property and resells it quickly for profit. Typically, the process involves home improvements.

    Temporary FHA Waiver Will Remain

    The FHA in 2003 stopped insuring certain mortgage loans on properties after large cities like Los Angeles, New York, Baltimore and Washington, D.C., witnessed fraudulent property flips. Homes were sometimes sold for double their purchase price within days or even hours.

    The FHA then opted to require sellers to own the home for at least 90 days before selling.

    In February 2010, the Obama administration reversed these restrictions of resale to keep neighborhoods and the U.S. housing market moving in the right direction.

    Over the years, the less-restrictive policy encouraged a large number of investors from all economic backgrounds to purchase foreclosed and homes in disrepair from lenders, to fix them up and then to resell them for profit within a short amount of time.

    Since then, more than 65,000 renovated homes have been financed using more than $11 billion in FHA-backed loans since that time, federal officials said. An estimated 23,000 properties were resold with FHA loans in the past year.

    How FHA Loans Helped American Communities

    The FHA is the largest insurer of mortgages in the world, providing insurance on loans made by FHA-approved lenders throughout the country since 1934. It has insured more than 34 million single- and multifamily homes as well as manufactured houses and hospitals since its inception.

    Acting FHA Commissioner Carol J. Galante said the plan allows the stabilization of real estate prices as well as neighborhoods and communities affected by foreclosure. It also permits investors to buy, renovate and sell rundown homes that, if left untouched, would have further depressed values and added to urban blight.

    The typical buyers of the renovated properties are first-time, moderate-income families that may not otherwise have the down payment required for a conventional loan. FHA down payments can be as minimal as 3.5 percent, compared with the 20 percent often required with a conventional loan.

    FHA Will Retain Strict Controls

    While the restrictions regarding resale time have been relaxed over the years, the FHA plans to retain strict controls on several aspects of the purchase, from appraisals and inspections to chain of title, to ensure the loans extended are above board.

    For example, FHA policy restricts any personal interest between the parties involved to include the buyer, seller, renovator and the appraiser. The seller of the renovated house also must have clear legal title to it.

    In addition, if the selling price is 20 percent more than what the purchaser paid, then a second appraisal must be done by a FHA-approved appraiser to validate the increase in price. An independent inspection report also must be completed if there is a 20 percent increase to ensure no additional repairs are needed that could affect the health and safety of the buyer.

    Federal Committee to Support Economic Recovery

    In an effort to strengthen the American market, the Federal Open Market Committee (voted last week voted to continue its program of buying $40 million of mortgage-backed securities per month and to keep the target Fed Funds rate at 0 to 0.25 percent. The FOMC is a committee within the Federal Reserve System that oversees the nation’s open market operations.

    “This exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent [and] inflation [is] between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal,” the Federal Reserve said in a news release. “When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.”

    The targets are not anticipated to be met until 2015.

    The FOMC also said it will keep its policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities, and will recommence rolling over maturing Treasury securities at auction in the new year.

    In debt? We can help!

    • Amount
    • Type
    • Contact

    How much do you owe?

    What can we help you with today?

    Related Articles

    Millennial Home Buyer Wanted

    Why Millennials Aren’t Buying Homes

    Data shows that homeownership among millennials is down, but that doesn’t mean they aren’t interested in buying a home.In the last two decades, homeownership in the U.S. has declined across the board and especially so for young Americans. The rate of ...

    Continue Reading
    JPMorgan Fined for Illegal Lending Practices

    JPMorgan Accepts $13 Billion Fine For Lending Practices

    JPMorgan Chase Bank agreed to pay a $13 billion fine to the U.S. government for its role in the disastrous mortgage lending practices that landed more than 15 million American homeowners underwater.The announcement was made by Eric Schneiderman, the ...

    Continue Reading
    FDA finances nursing home mortgages

    FHA Steps in to Help Nursing Homes by Backing Mortgages

    Attempts by nursing home operators to stay relevant and profitable in the constantly changing world of health care, received a boost from the Federal Housing Administration (FHA) last year.The FHA stepped up to insure 458 mortgage loans worth roughly $3 ...

    Continue Reading
    New mortgage rules protect consumers

    New Rules Protect Consumers from Overzealous Mortgage Lenders

    A new federal regulation puts the onus on lenders to take meaningful steps to ensure a person can afford a home loan, before they actually give them one.The “ability-to-repay” rule was issued by the Consumer Financial Protection Bureau (CFPB) to help ...

    Continue Reading
    Bank of America settlement

    Bank of America to Pay $10B to Fannie Mae to Settle Claims

    The first week of 2013 has not been a happy new year for some of the nation’s largest banks, particularly Bank of America.On Monday, Bank of America agreed to pay $10 billion to Fannie Mae to clear up claims made on troubled mortgages, mainly associated ...

    Continue Reading
    Housing market

    Housing Market Expected to Rebound in 2013

    With just a few weeks remaining until the end of the year, millions of Americans are seeking ways to make 2013 better, especially from a financial perspective. From making new real estate investments, refinancing mortgages, entering into reverse mortgages or ...

    Continue Reading

    Obama Eyeing New Leader for Federal Housing Finance Agency

    Facing increased scrutiny from housing advocates and community groups, President Barack Obama is being asked once again to sidestep political protocol to replace Ed DeMarco, the acting head of the Federal Housing Finance Agency (FHFA).Obama is being asked ...

    Continue Reading
    Housing market rebounds

    Foreclosures on Hold for Holidays as Housing Market Slowly Recovers

    With an improving economy and programs aimed at helping homeowners stay current with their mortgages, housing-market analysts say that 2012 will prove to be a turnaround year for homeowners and the country. In addition, mortgage giants Freddie Mac and Fannie ...

    Continue Reading
    Get Help Now

    Overwhelmed with debt? You have options for lower monthly payments!