Doug Reynolds

information provided by California Association of Realtors

Status/Summary:
Currently, FHA will not insure a loan for any property where title was transferred within 90 days. There are some exceptions to this rule, including GSE REOs, HUD REOs, state and federally chartered financial institution REOs, and properties where local and state governments have taken possession. What is not exempted from the rule are properties that were bought by investors and/or developers looking to do quick fixes and then flip the property.

California's housing market has evolved throughout 2009, and with mortgage rates still at all time lows and home prices in the lower-end markets back to pre-bubble levels, demand for this market in California has skyrocketed. Multiple offers have become the norm for appropriately priced homes. Many of these offers are from investors looking to take advantage of low REO prices and turn them quickly for a profit. These investors are now discovering that FHA homebuyers, who make up a substantially large portion of today's buyers, are not eligible to purchase the flipped property.

Background:
In 2001, HUD issued a proposed rule that would have barred the FHA from insuring mortgages for buyers purchasing properties six-months after the property changed hands. The purpose of this was to protect the FHA and its tax-payer guaranteed reserve funds from a rash of flipping scams that were preying upon both the FHA rules and homebuyers.

While there were many scams going on, they would often involved in one form or another collusion between investors, appraisers, agents, and/or lenders. Investors would purchase properties at rock-bottom prices, often in poorer neighborhoods and/or neighborhoods that had been hit hard by foreclosures. The investor may or may not perform some cosmetic improvements and then would resell the home after a few days or weeks at an artificially inflated price. Appraisers in on the deal would support the inflated price and a lender or mortgage broker would lie on the homebuyer application. Sometime there were homebuyers who bought a home not worth what they paid, and sometimes the buyers were fictitious (straw buyers). FHA buyers may be more vulnerable to predatory loans as they are usually first-time homebuyers and/or have little to no financial education. In the end FHA was left holding the bill.

The 90 day rule was a compromise between HUD and industry parties. The purpose of the 90 day anti-flipping rule was to garner support from both business interests and consumer groups. Many lenders at the time had implemented this practice prior to FHA making it official, so when the anti-flipping rule went into effect there was little to no change for some lenders.

Changing the 90 day anti-flipping rule is a recognition of how market conditions have changed since 2001. Throughout 2009 investors have purchased many properties helping to maintain a low inventory and high demand throughout the year. Changing this law is necessary so as not to discourage investors and drive them from the market.

The problem of participating parties colluding to defraud consumers and the FHA is not as big of a concern now that Congress has passed the SAFE Act requiring minimum requirement for mortgage originators and their national registration, and the tougher appraisal standards that have removed the ability to choose an appraiser from mortgage brokers and lender employees whose compensation is determined by the completion of the transaction.

Doug's Take: I agree with removing the 90 day Flip rule. With new laws in place, the original need for the rule is no longer valid. Also, with the way inventory is so low, many properties are not available to FHA buyers because of the rule. Flips have come back into the market very strong in the last 6 months here in Sacramento. Most of the good flippers have the property back on the market for sale within a few weeks. These properties cannot be purchased by FHA buyers. We already have enough of an inventory issue. I think removing the rule will help the market by still incouraging investors who want to flip properties and for buyers that would like to purchase those nicely remodeled homes but have little to put down and can only get FHA financing.

clear skies,

doug

www.BuyWithDoug.com

From BuyWithDoug.com's Blog

Change in sales volume and median sales price small but positive

Sacramento sales volume and median sales price both increased for October, showing a continued trend of a flat local market. Single family home sales increased 5.2% from 1,631 to 1,716 total units in October. Year-to-year, the current figure is 18.4% below the 2,103 sales of October 2008. Of the 1,716 sales this month, REO sales made up 41.6% of the total sales while short sales and conventional sales made up the remainder of sales at 20.7% and 37.7%, respectively. When compared with last month, REO sales decreased slightly while short sales and conventional sales showed slight increases.

After a month of decline, the median sales price increased 1.1% in October from $183,000 to $185,000. Compared to the previous year, the current figure is 5.2% below the $195,100 of October 2008. The Total Listing Inventory increased 2.3% from 5,273 to 5,392. The current Total Listing Inventory is 26.2% below the 7,304 listings reported in October last year. The Housing Market Supply figure changed slightly month-to-month from 3.2 months to 3.1 months. Compared with last year, this figure is down 11.4% from the 3.5 months of inventory of October 2008. This figure represents the amount of time - in months - it would take to deplete the total listing inventory given the current rate of sales. According to MetroList® MLS data, the average home spent 49 days on market (from the time it was listed to the time escrow was opened) and was 1,692 square feet. Of the 1,716 sales this month, 160 (9.3%) had 2 bedrooms or fewer, 956 (55.7%) had 3 bedrooms, 468(27.2%) were 4 bedroom properties and 132 (7.6%) boasted 5+ bedrooms.

A lackluster Sacramento market does have a positive side: market stability. In the last six months the median sales prices has remained between $180,000 and $190,000. This makes for a less volatile market than Sacramento had previously encountered. Also, the recent extension of the $8,000 tax credit for first time homebuyers has relieved many trying to close before the original November 30th deadline. The new deadline has been set for April 30th, with a 60-day extension if a binding contract is placed prior to the April deadline. A less publicized $6,500 tax credit for "move up" buyers also went into effect following the vote. For more information on the tax credit, view my older blog posts. Also available to first-time homebuyers represented by a REALTOR® is theMortgage Protection Program (MPP). This program is offered through the C.A.R. Housing Affordability Fund and it provides involuntary unemployment protection to buyers, increasing buyer confidence and reducing the possibility of foreclosure.

clear skies,

doug

www.BuyWithDoug.com

Is this neighborhood safe? A question i get asked on a regular basis as a Realtor. Well, over the years i've found some good resources to find out the answer to that question. If you are every looking for a home in an unfamiliar neighborhood, it's always a good idea to check out the crime and school statistics in the area. That information will effect your comfort level in your new home and your resale value later on.

Some resources include NeighborhoodScout or SpotCrime. One particularly important point to note is the issue of sexual predators. CrimeReports.com allows you to enter your address to locate crime statistics plus identify whether registered sexual predators are living nearby. Please note that unless your local policing authority is reporting crimes to these online sources, there may not be accurate or complete data.

clear skies,

Doug

www.BuyWithDoug.com