(This Post Has Been Updated – Please See Addendum At End.)
Recently announced on CNN and nation-wide media: Finally, the Bush Administration has taken a practical step to allow real estate investors to ease the foreclosure crisis. And it has inadvertently admitted that government is part of the problem with the market we have today.
On June 9, FHA announced a change in its rules. Previously, FHA would only insure mortgages on properties that had been owned by the seller for at least 90 days. The entire objective of this rule was to eliminate the ability of investors to buy a property for a great price and instantly resell it (aka “flipping”). Since FHA is the largest mortgage insurer in the country, FHA’s policy instantly dried up a lot of the market for property flips.
But the June 9 announcement from FHA is a major shift. FHA’s new policy is that they will not impose a 90-day ownership requirement on sellers, which essentially paves the way for real estate investors to get back into the very lucrative game of real estate flipping.
There are some limitations. The property must have been in foreclosure, and this waiver is supposed to last for only one year.
This is REALLY GREAT NEWS if you’re a flipper. There are so many foreclosures out there, and the market is showing all the signs of firming up and is even appreciating in many markets around the country.
Furthermore, this is fascinating, because the shift in policy is an implicit admission by the government that the activities of real estate investors and other real estate professionals are an asset to the functioning of the real estate market. Until now, I’ve not heard of any suggestion by the government that real estate investors (and particularly wholesalers/flippers) are anything other than “equity thieves” and “vultures”.
Here’s a hint for the government: Get out of our way with other stupid policies, such as the work that’s being done right now in the U.S. Congress to limit our rights to be involved in foreclosure consulting, loss mitigation services and creative real estate strategies (like subject-to transactions and contracts for deed). The economy functions best when you are out of our way, big brother. Remember: The mortgage meltdown is the result of bad economic policy from the GOVERNMENT, not from real estate investors.
This is eerily reminiscent of the S&L debacle of the 1980′s when the government began to make properties available at ridiculously low prices through the “Resolution Trust Corporation”. It’s sad to recall that time because it was SO EASY to get insanely great prices on properties, yet relatively few people took advantage of it, and lost out on MILLIONS in profits that were there for the taking. Let’s don’t make that mistake again, ok?
Sound off below – how will this effect your business? What other regulations do you think the government should remove for the benefit of the economy and our country?
Update: Clearing Some Misconceptions About The Title Seasoning Waiver Announcement
It’s about time. The antagonism against real estate wholesalers is simply foolish and has never given any benefit to the real estate market.
Long overdue, should not even be for such
a short period of time.
You are preaching to the choir, brother Brian!
Great news for investors, to be sure!
Thanks for your commentary on it. Insightful.
Thanks for putting it into perspective for us.. In actuality they need us the investors to help them lower the inventory that is flooding the market.. Investors to the rescue again.. and when their dont need us anymore they’ll make business harder for investors again with more red tape and regulations.. When in fact the regulations should have been against and for the mortgage banking and lending industry lets give 100 percent financing with an adjustable rate! Where is the help for these people in this situation. Investors to the rescue, so gear up!
Only great for mortgagees trying to sell; read on:
http://www.freerealestatetraining.com/66/fha-waiver-text/
I’m with Steve, where does it say re-sellers are exempt from the 90 day rule, “…waived for a period of one year from today’s date with regard to sales of properties acquired by mortgagees, whether sold directly by the mortgagees or by their subsidiaries or by vendors to whom they have transferred titles to properties for the purpose of effectuating sales of those properties.”. I see mortgagees, that is the lender, or a company/person selling properties for that lender.
It remains to be seen – I’ve got some calls in to FHA lenders to confirm this. The question is this: Can the phrase “vendors to whom they have transferred titles to properties for the purpose of effectuating sales of those properties” be interpreted to mean independent real estate companies (such as investors like us)? I think there’s a very good chance that it DOES include us, unless there is language in the original regulation that narrowly defines the term “vendor”. Still working to find out about this. Thanks for the comments! — Bryan Ellis
I take issue with the comment “The mortgage meltdown is the result of bad economic policy from the GOVERNMENT, not from real estate investors.” The mortgage meltdown is the result of greedy lenders that made bad loans to people that had no business buying a home. I do agree that the government needs to back off and let the capitalistic machine go to work.
Hi Bryon – thanks for your comments! It’s true that lenders made bad decisions, and that certainly contributed to the current mortgage crisis. But at the heart of it was the foolish and excessive cutting of interest rates all through the late 90′s which made money – and therefore mortgages – very cheap. This happened so aggressively and so quickly that it seemed as if it was nearly free to purchase properties, thus contributing to the insane property valuations in markets like Los Angeles, Las Vegas, Miami, etc. You’re right one one count: It can’t be said that 100% of the blame lies with the government. But what can be said is that if the Federal Reserve and monetary policy had been better managed during the 90′s, we wouldn’t be discussing this right now. — Bryan Ellis
great thoughts
I am not looking at this as good news until I see that if includes independent real estate companies! If so let the buying spree with FHA’s begin!
I’m still waiting to meet the Lender that gets up in the morning and says “I sure hope a couple of my loans go bad today”.
Sure there was some loose lending, pushed by the Govt. wanting more people in homes. However, all borrowers sign disclosures and have ample time to educate themselves in the pitfalls of their mortgage obligations. The climate of the country has definately gone to less “personal responsibility”, but I wonder if we should have sympathy for the 7% who have defaulted on their obligations when 93% of us meet our obligations, some of us making a dozen payments a month.
I’m voting for less govt. interference on all levels…Let the Free Market regulate itself.
That sounds like the voice of reason to me! — Bryan Ellis
Bryan,
Great info on your blog as usual. What the government doesn’t get is that the natural laws of SUPPLY AND DEMAND (Economics 101) need to take place to correct this terrible real estate fiasco in certain parts of the country.
And for that to happen, there’s going to have to be some collateral damage and some people are going to have to lose their homes through the foreclosure process.
The government needs to stop monkeying around with the “DEMAND” part of supply and demand (by putting in silly policies restricting investors from buying property) and just get out of the way.
Keep up the insightful posts.
Justin Lee
I do feel sorrow for the home owners that have lost thier home to foreclosure but i do agree with what Justin Lee has said about the government monkeying around with the demand part (Restricting Investors) from buying properties, and get out of the way.
Unfortunaltely my friends you only have a portion of the change correct. To quote Nancy West, FHA Representative, Santa Ana, Ca. “the seller of the foreclosed property can only be an banking institution. Thereby easing the banks to liquidate directly to an owner occupied borrower w/ an FHA loan.
The investor is still held to the 90 day policy. You may want to check out the policy to how its applied to investors w/ your local fha lender.
Thanks for the update. I agree with phil, that the legistration and regulation needs to be on the banking industry. I just talked with my banker and have found out that with all the inventory out there right now, they are making it harder to get financing for us investors that want to do rehabs. Or just buy and hold. 20% down minimum! I also agree with Bill, less Gov\’t is always better.
Come on folks, all this talk about Govenment………………. the Govenment is the people we send to Congress……. don’t you all think it is time we stopped sending lawyers to congress and started replacing with BUSINESS MINDED people that understand Capitalistic ideas?
Lets put the blame where it belongs, with the Representatives of the people……… and the people are sending the wrong folks to represent us.
Vote for those that offer Tax Cuts, Less intervention, less services, and on and on and on.
The 90 day rule has kept me from completing a few deals as quickly as I would like and is more a nuiscance than a hindrence in my Real Estate Investing Business. Just stay away from FHA…… gee how hard is that.
about time only private enterprise can solve economic problems
Agree with Joe, “Just stay away from FHA” with respect to flipping the the property. However, using FHA in other aspects of investing makes a lot of sense. Just a matter of knowing how to use different tools. I have found that FHA loans have recently been the best way to get lease options tenants approved. 580, 2yr consistency and a pmt below 29% of mo. earnings can get approved for 95% LTV at 6.5%
After reading the statement from HUD No. 08-082 Lemar Wooley on June 13, 2008 \"To address that sizeable inventory, lenders have hired companies that specialize in the marketing and disposition of foreclosed homes. It\’s reasonable and appropriate that these firms have the ability to sell the properties to borrowers using FHA financing.
\"
How can any one interpet this to mean this is a plus for Real Estate Investors? I see no way to interpet what we do as being \"hired\" by the bank. While the bank does hire Auction companies and hires disposal companies to handle their foreclosures, they SELL to investors not hire them!
The next part of their statement is even more damning to investors, \"With certain exceptions, FHA currently prohibits insuring a mortgage on a home owned by the seller for less than 90 days. This prohibition is intended to prevent property \"flipping,\" a predatory practice that strips a home of its equity before being quickly resold at an inflated price to an unsuspecting buyer. FHA\’s new policy will permit the immediate sale of foreclosed properties to legitimate borrowers wishing to use FHA-insured financing.\" Does not sound either friendly nor accepting of investors wanting to flip houses.
I remember in the 80′s when HUD auctioned real estate properties in a open bid at various Hotels throughtout the Country.
The current policy of properties being auctioned is on the web as closed bids. This policy is to secretive and who can say who was the highest bidder? Online bidding is ok but it should be in a open format or just have these auction in Hotels again in a open public format.
Are we all looking at the same law? As I was sent this from a Mortgage broker of the Law.
Looks like this is only to help the banks not investors read below. Looks like only for seasoning from bank to reo.IMPORTANT: When the foreclosed property is sold (i.e to investor) the 90 day rule once again applies.
Following is the exact text I received from HUD (FHA is a part of HUD- Housing and Urban Development)
Temporary Property Flipping Waiver:
The temporary waiver of the property flipping rule will permit lenders to more easily sell properties acquired as a result of foreclosure to homebuyers who use FHA financing. Both lenders and the property disposition firms they hire (or with whom they are affiliated) are now exempt from the 90-day lock-out period that once prevented homebuyers from using FHA financing to purchase properties that were owned by an individual/entity that held the property for less than 90 days. Under the new waiver, homes that were foreclosed on and are being sold by the mortgage holder or on its behalf may be purchased by FHA borrowers without regard for the 90-day seasoning period. To prevent future flipping of any properties purchased through the foreclosure sales, the subsequent sales of the properties will continue to be subject to the standard regulatory requirements – lockout for the first 90 days and two appraisals required to justify any increase in value of 100% or more for sales that occur within 90 to 180 days.
The waiver is effective for all FHA mortgage insurance endorsement requests on or after June 9, 2008 and expires for all loans for which the sales agreements were signed by the seller and buyer prior to June 8, 2009. Again, the exemption applies only to the initial sale of a foreclosed property and does not extend to a subsequent sale of that property.
UPDATE: Be sure to check out this page for updates about this issue:
http://www.freerealestatetraining.com/101/misconception-hud-waiver/
– Bryan Ellis
This is a nothing 00000 system. You log on to anthing except a page that trysa to sell you something.
It’s regrettable you can’t find something of value here, unlike the hundreds of other users of this website who visit it every single day. For your and my benefit, I have removed you from our announcement list. The removal is permanent, so no need to attempt to resubscribe. I’d hate to burden you with more free news and training, so you’ll not need to be concerned any longer. –Bryan Ellis
Way to go Bryan. No need to keep complainers around. I’m able to find plenty of value on this site, and have never paid a penny for any of it – Thank You!
It’s my pleasure, Terry – thank you for your very kind words! — Bryan Ellis | FreeRealEstateTraining.com
DITTO to Terry’s comment. There’s nothing worse than complaining, pessimistic, negativity-seeking haters who just try to stink up the dreams/ mind sets of people destined for success. Lots of value here…I’m very appreciative…Thank You!!
Thank you Rob – I’m truly gratified that this site is helpful to you! — Bryan Ellis | FreeRealEstateTraining.com