FHA to Home Flippers: Keep On Rolling

NEW YORK (MainStreet) -- The U.S. Federal Housing Administration has recently kept a sharp eye on those ubiquitous house flippers – homebuyers who snap up properties, shine them up and sell them for a quick profit.

The FHA has decided to give flippers a break, and extend further a 2010 waiver that allows them to keep getting insurance on homes that are bought and resold in 90 days. The waiver now will stay in effect through 2012.

The extended FHA waiver is forged in the realities of the U.S. housing market. With foreclosures still high, and home prices still volatile, the FHA figures the market needs all the buyers it can get – even those who don’t plan on ever living in the homes they buy.

The move is not without some risk. Studies have shown that home flippers have a direct, and negative impact on the housing market collapse of 2008. The Federal Reserve Bank of New York released a study this month that shows home flippers played a disproportionate role in the real estate meltdown in four hard-hit states: Nevada, Arizona, California and Florida.

The New York Federal Reserve says that home mortgages are more likely to default when properties are purchased by buyers who don’t live in those properties, or who own multiple properties.

According to the Fed, at the apex of the housing boom (early 2006), approximately 35% of new U.S. home purchases went to buyers who already owned a home. But in those four hard-hit states, that number rose to 45% – up from about 25% in 2000.

The FHA, however, is willing to overlook those numbers, and will extend the waiver that curbed such sales. That waiver, which originated in 2010, was set to expire this month. It suspended rules that restricted the FHA from insuring mortgages on properties bought and sold within a 90-day period.

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