Loan Modification

FHA Guidelines:Extending suspension of anti flipping rule benefits small scale investors, communities

By Karen Lawson

The Federal Housing Administration (FHA) intended to prevent mortgage fraud when it developed and “anti-flipping” rule preventing FHA borrowers from buying homes that had been owned by sellers for less than 90 days. Unfortunately, unintended consequences squelched legitimate purchases of foreclosed and damaged homes by small scale investors planning to repair and resell such homes. Vacant and abandoned homes cause blight in communities, draw crime, and negatively impact surrounding property values. In extending its suspension of the anti-flipping rule, FHA is demonstrating its commitment to communities and improving housing markets.  Small scale investors who buy and renovate damaged homes are providing a source of affordable housing for first-time buyers and others wanting to purchase homes in move-in condition, and who don’t want to concern themselves with the risks associated with buying foreclosed homes sold in as-is condition. Such home renovations and sales are contributing to the nation’s housing recovery. The benefits of allowing quick turnovers of homes by legitimate investors outweighs the risks of mortgage fraud perpetrated by “straw buyer” schemes.

FHA: balancing community revitalization and mortgage fraud risk

A popular method of mortgage fraud involves straw buyers, which are fictional or “dummy” buyers used for buying homes with FHA loans. Once such loans are closed, title to the mortgaged homes are quickly transferred to investors or other entities in violation of FHA regulations. Considering the recent depletion of FHA  cash reserves dedicated to reimbursing mortgage lenders for mortgage defaults,  it’s understandable that the agency strives to take steps for reducing exposure to further losses associated with mortgage loan defaults and foreclosure.

Affordable homes and accessible mortgage loans: Essential to US housing recovery

We believe FHA is taking the right step in further suspending its anti flipping rule. With promising signs of economic recovery, housing markets continue to lag, and any efforts supporting communities and individuals toward revitalizing neighborhoods through providing access to affordable homes is a welcome step.  In the meantime, FHA must work with its network of approved mortgage  lenders to ensure due diligence in mortgage underwriting and fraud prevention efforts. Under FHA guidelines, approved FHA lenders are responsible for originating home loans under FHA loan programs; instead of implementing regulations that hamper home sales, it seems logical to hold mortgage lenders accountable for due diligence in their approval of mortgage loans under FHA programs.

Buying damaged and/or foreclosed homes: FHA 203 (K) provides funding for purchase and renovation

For home buyers looking for a “fixer,” FHA offers a home rehabilitation program that provides financing based on the “as-repaired” appraised value of a home. This permits buyers or homeowners to purchase a home and repair it, or refinance their current mortgage and have funds for rehabbing their existing home. This program falls right in line with the potential for cleaning up blighted neighborhoods while providing affordable home ownership options.

Full post as published by FHA Mortgage Guide on January 26, 2011 (boomark / email).