Here is the link http://realestate.msn.com/article.aspx?cp-documentid=23616063

Well as I mentioned a few posts ago I was interviewed by a reporter at MSN about the new changes to the FHA 90 day anti-flipping rule. Well low and behold I received an email from my Uncle who is in Tapei of all places to let me know he saw me in the article.

Here are some portions of it

Can flippers save the housing market?

In an attempt to breathe more life into the housing market, HUD is changing an FHA rule that prohibited insuring any home sold in fewer than 90 days. Officials hope the change will help rehabilitate distressed properties faster and raise home values.

At the beginning of February, the U.S. Department of Housing and Urban Development dropped — for a year — the Federal Housing Administration’s prohibition against insuring a home that had been owned by the seller for fewer than 90 days.

The idea is to “facilitate the return of repaired and habitable properties to the market in a timely fashion,” according to the announcement by HUD, and hopefully to lift real-estate values as these properties are sold.

A boon for the first-time homebuyer
“We’ve seen quite a bit of activity in the market on the part of first-time homebuyers,” says Paul Bishop, director of research for the National Association of Realtors. But, he says, many of the options are too “distressed” for many buyers to consider or lenders to finance. “This will give them an opportunity to purchase a nice home at a pretty reasonable price.”

And given that FHA loans are estimated to account for as many as half of all the loans made to first-time homebuyers, that increases the pool of buyers for flips dramatically

[I agree – Why is it fair that someone can’t buy a home that someone has only owned for 30 days as long as nothing underhanded is going on. I have been succesful in all of our flips selling to end buyers but 80% of the sales I have had to exclude FHA buyers. I still sold the property but the FHA buyers get stuck with the scraps.]

Will lenders agree?
Moreover, it’s unclear how many lenders will play along with the FHA and make loans for properties flipped in fewer than 90 days.

Bank of America, for one, says it was still “assessing the guidelines” and had not made a decision yet about lending on these quick flips.

[this is going to be the real question and I will let you know if I have any issues with this]

A green light for investors
San Diego investor Curtis Gabhart is ecstatic about the new rule and says it will definitely boost his investment in Southern California homes.

“We were (flipping) one or two properties a month until January,” he says. “With the new rule, we’ll probably do three to five a month. It increases our yield and decreases our risk.”

[Hey that’s me! Here are the FHA restrictions]

And HUD has put some conditions on these flips:

  • All transactions must be arms-length with no “identity of interest” between the buyer and seller or other parties involved.
  • The property in question must have “no pattern of previous flipping” in the past 12 months.
  • And in cases where the sale price of the property is 20% or more above the seller’s cost — which most of these sales will likely be — the lender must justify the mark-up with documents outlining the renovations, and/or order a second appraisal. Moreover, the lenders must order a property inspection and provide it to the buyer before closing.

No time like the present
Investors can’t say with certainty for how long this new rule will boost their buying. Most are concerned with the so-called “shadow inventory” of homes that are delinquent but not yet foreclosed on.

A new study by John Burns Real Estate Consulting estimates that 5 million houses and condominiums on which mortgages are now delinquent will go through foreclosure, short sale or another process that puts them on the market over the next two years.

“It certainly is threatening another write-down in home prices,” says founder and CEO John Burns, especially if the economy does not improve later this year.

That threat has investors ready to buy and sell now, while mortgage rates are low and an army of first-time homebuyers is out in force, armed with the government tax credit.

“I don’t know what’s going to happen to prices in six months,” Gabhart says. “If I buy it and sell it in 90 days, I’m not as susceptible to the ups and downs of the market.”

[It will be interesting to see how the count the 20% because our are generally 50-75% more but we put $40,000 – $65,000 into the properties. Also they mention the shadow inventory. As I mentioned in a recent post  Foreclosures, defaults fall in San Diego, but analysts urge caution that is why I mention getting in and out quickly. I may not know what’s happening in a year or two but if I can buy at 65-70% of todays value and get out within 6 months I am hoping I won’t be as exposed. If the property values have gone lower I just try to buy at a lower price, still 65-70% of that current value. Key is to make sure there are transactions]

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