FHA says: Flip that house

@CNNMoney January 2, 2012: 10:48 AM ET
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NEW YORK (CNNMoney) -- Flippers, the real estate investors who buy homes on the cheap and quickly resell them at a profit, just got a reprieve from the Federal Housing Administration.

In an effort to help stabilize housing prices and unload some of the foreclosures that are flooding low-income communities, the mortgage insurer extended a waiver of its anti-flipping regulations through 2012.

The waiver, which was initially issued in 2010 and set to expire this month, suspends regulations that prohibit the agency from insuring mortgages used to purchase homes that are bought and resold in less than 90 days.

"This extension is intended to accelerate the resale of foreclosed properties in neighborhoods struggling to overcome the possible effects of abandonment and blight," said Acting Federal Housing Administration Commissioner Carol Galante.

Low-income neighborhoods are particularly plagued by foreclosed homes that lower property values and act as magnets for crime and other social ills. Real estate flippers often rehab these damaged homes before reselling them, improving conditions for neighborhoods.

The FHA, which does not issue mortgages but insures them, is a primary player when it comes to mortgage lending in low-income communities. Many loans in these communities could not be issued without FHA backing.

The ban against flipping was initially put in place to prevent predatory flipping, in which homes are quickly resold at inflated prices to unsuspecting borrowers.

In order to qualify for the waiver, certain conditions must be met. The transaction must be "arms length" with no other relationship between seller and buyer.

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In addition, if the new sale price is 20% or more above the previous selling price, the lender has to document and justify the increase and meet other conditions, such as making sure the home has been inspected.

Since the waiver went into effect in February of 2010, the FHA has insured more than 42,000 loans to purchase homes that were being resold within 90 days. These totaled more than $7 billion in mortgage principal. To top of page


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