Will the FHA waiver supporting flipper activity boost home sales volume in 2012?
- Yes (64%, 93 Votes)
- No (36%, 52 Votes)
Total Voters: 145
The Federal Housing Administration (FHA) has extended the waiver of its anti-flipping restrictions through December 31, 2012. The waiver allows buyers to continue using FHA-insured mortgage financing to purchase single family residences (SFRs) from sellers who have owned the property for less than 90 days – the concurrent or nearly concurrent double escrow or assignment arrangements for a resale.
Though the FHA traditionally did not insure financing for properties with a less than 90-day resell turnaround – a policy originally established to control frenzied property speculation by flippers – the rules were temporarily waived in 2010 in hopes of loosening buyer and seller activity and stabilizing real estate sales volume and prices. The extended waiver for the duration of 2012 will be a continuation of the original waiver.
Nationally, nearly 42,000 mortgages totaling more than $7 billion on properties resold within 90 days of acquisition have been insured by the FHA since the waiver first went into effect in 2010. This figure represents roughly 5,500 mortgages in California over a two-year period, based on our 13% of the nation’s population.
first tuesday take: Didn’t approve of the waiver in its first life. Nothing much has changed except the weather since then. [For more information on our response to the first waiver, see the February 2011 first tuesday article, The FHA – a flipper’s best friend.]
While the number of FHA-insured and financed flips is so low as to be statistically insignificant, the FHA’s indirect promotion of speculation is always unnecessary and breeds improper public expectations about the real estate market during periods of economic recovery.
The FHA appears to be of the opinion that providing a flipper with the path of least resistance will surely open the floodgates to the recovery of sales volume in the housing market (when exactly those floodgates opened in the last two years while the first waiver was in action is a question we would like for them to answer). If it so happens FHA soothsayers are correct this time around, California brokers and agents must be on a red alert to prepare their clients for a resurgence in flipping.
Yes, the state’s real estate-owned (REO) activity is frighteningly high, yes, our sales and prices are abysmal and yes, flippers can provide quick cash for REO properties in such a drought as this. But no, California does not need another generation of speculators encouraged to sweep up properties dirt cheap and then flip them at higher figures for a profit beneficial to no one else but themselves (since flippers add no value to the property as renovators do). [For more information on the effect of speculators in SFR sales, see the August 2010 first tuesday article, Speculations on speculator suppression.]
Brokers and agents representing homebuyers in a flipper’s resell scheme are bound by a fiduciary duty to their clients. In any real estate transaction (especially those involving a flipper), an agent must disclose all material facts which might influence the sale price offered to be paid for the property. One material fact is the agent’s knowledge or belief that the seller is a speculator engaged in resale flipping activity, which if disclosed might well influence a homebuyer’s pricing of the property. [For more information on an agent’s fiduciary duties in transactions involving speculators, see the June 2010 first tuesday article, Agency duties: the flipper’s quandary.]
RE: “FHA Extends Waiver of Anti-Flipping Regulations Through 2012” from the U.S. Department of Housing and Urban Development