NEW YORK -- Flippers, the real estate investors who buy homes on the cheap and quickly resell them at a profit, just got a reprieve from the Federal Housing Administration.
In an effort to help stabilize housing prices and unload some of the foreclosures that are flooding low-income communities, the mortgage insurer extended a waiver of its anti-flipping regulations through 2012.
The waiver, which was initially issued in 2010 and set to expire this month, suspends regulations that prohibit the agency from insuring mortgages used to purchase homes that are bought and resold in less than 90 days.
"This extension is intended to accelerate the resale of foreclosed properties in neighborhoods struggling to overcome the possible effects of abandonment and blight," said Acting Federal Housing Administration Commissioner Carol Galante.
Low-income neighborhoods are particularly plagued by foreclosed homes that lower property values and act as magnets for crime and other social ills. Real estate flippers often rehab these damaged homes before reselling them, improving conditions for neighborhoods.
The FHA, which does not issue mortgages but insures them, is a primary player when it comes to mortgage lending in low-income communities. Many loans in these communities could not be issued without FHA backing.
The ban against flipping was initially put in place to prevent predatory flipping, in which homes are quickly resold at inflated prices to unsuspecting borrowers.
In order to qualify for the waiver, certain conditions must be met. The transaction must be "arms length" with no other relationship between seller and buyer.
In addition, if the new sale price is 20 percent or more above the previous selling price, the lender has to document and justify the increase and meet other conditions, such as making sure the home has been inspected.
Since the waiver went into effect in February of 2010, the FHA has insured more than 42,000 loans to purchase homes that were being resold within 90 days. These totaled more than $7 billion in mortgage principal.
Home prices in Danville, Ill., underwent a smaller-than-average decrease from their peak in the third quarter of 2007. Moreover, home prices increased slightly (1.5%) from the second quarter of 2010 through the second quarter of 2011. This was only a momentary improvement, though, as home values dropped 9% from January to October of this year.
Yuba, Calif., was one of the hardest-hit real estate markets in the country during the recession. From its peak in the second quarter of 2005, home values in the region plunged a stunning 51.1%, one of the 10 biggest declines in the country. In the first 10 months of the year, prices fell just over 9%. Unemployment in Yuba is 16.7%, the third-highest rate in the country. This is actually a substantial decline from the beginning of this year, when it had a rate of 21%.
Tucson’s economy was hit harder than most areas in the country. This is also true for its housing market. The metropolitan area has had very high foreclosure rates. This, combined with what has been a weak job market in the area, caused home prices to drop 42.8% from their peak in the first quarter of 2006. Home prices are still falling, although at a much slower rate than in previous quarters. From January to October of this year, home values fell 9.36%.
Since their peak in the first quarter of 2006 to the second quarter of 2011, home prices in the Reno-Sparks metropolitan area sank a jaw-dropping 51.1%. This is among the largest drops in the country. Home values in the region have yet to increase at all, however, their rate of decline has slowed down. Additionally, the metropolitan area had a foreclosure rate of nearly 5% as of September, among the highest rates in the country. The overall economy of the Reno-Sparks area is still in bad shape, with an unemployment rate of 13.3%, which is much higher than the national average.
Home values in the Bloomington-Normal metropolitan area have decreased more than those in any other area of the country from January to October 2011. Home prices in the metropolitan area did not peak until the first quarter of 2008. According to Fiserv-Case Shiller, home prices have declined just under 1% from their peak to the second quarter of 2011. From January to October of this year, however, they dropped a dramatic 10%.