February 2011

FHA extends ‘anti-flipping’ waiver

Homebuyers relying on FHA-insured financing will still be able to buy homes that have changed hands in the last 90 days, thanks to a decision by the Federal Housing Administration to extend a temporary waiver of its “anti-flipping” rule through the end of the year.

The anti-flipping rule, a 90-day waiting period implemented to protect the FHA’s mortgage insurance program from losses, already included an exemption for homes repossessed by Fannie Mae, Freddie Mac, and state- and federally chartered financial institutions.

But last year, FHA took the additional step of waiving the waiting period for all resales — including homes purchased and rehabbed by private investors.

Since the broad waiver went into effect on Feb. 1, 2010, FHA said it has insured 21,000 90-day property flip loans worth more than $3.6 billion that would otherwise not have qualified for financing.

The Obama administration believes the waiver may be helping stabilize home prices and neighborhoods that have been heavily impacted by foreclosures.

An analysis of property-flip loans suggests they carry no more credit risk than others insured by FHA, although they were often missing documentation needed to support valuations, the government said in a notice announcing an extension of the waiver until Dec. 31, 2011.

“This action enables our borrowers, especially first-time buyers, to take advantage of this opportunity and buy a home that has recently been rehabilitated,” said FHA Commissioner David Stevens in a statement. “It will also help to move more foreclosed properties off the market and reduce the number of vacant homes in neighborhoods throughout this country.”

To protect FHA borrowers against predatory flipping — resales of properties at inflated prices — the waiver continues to be limited to arms-length transactions, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.

In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, lenders must justify the increase with a second appraisal or supporting documentation verifying that the seller has completed renovation, repair and rehabilitation work to substantiate the increase in value.

The lender must also order a property inspection and provide a copy of the report to the purchaser before closing.

In analyzing 17,114 90-day property flip loans insured between Feb. 1, 2010, and Oct. 31, 2010, FHA found the early payment default rate was 0.03 percent — less than the 0.15 percent rate for the 1.2 million purchase loans insured during the same period. Borrower debt ratios and credit scores were also nearly identical.

But a further review of a subset of those loans found they were more likely than other purchase loans to have problems with valuations. Nearly half had unacceptable valuation reviews, with a majority of the problems that were discovered related to documentation compliance issues, such as a missing inspection report or second appraisal.

For Your Clients: Common Impediments to Selling and How to Overcome Them

Even with the economy improving overall, it would be false to say the real estate market is booming, especially for home sellers. Unfortunately, negative financial headlines are causing some potential sellers to needlessly hide in fear. For many, it truly is not the ideal time to put their home on the market. But, even in a less-than-robust economy, you might be in the right—perhaps even the ideal—situation to sell. Unfortunately, some common impediments may make you run from doing so. Here are a few of those mental roadblocks, and how to overcome them:

I know my house is too big and expensive to maintain, but it’s filled with good memories. A lot of people, specifically in their 50s and 60s and beyond, are reticent to sell a home, because it’s where they raised their kids. At holiday time, that pull becomes even more powerful, when family comes back to visit. While memories are extremely important, they can keep people in a home that’s too expensive to maintain and too large for them, for too long. And, what’s worse, sometimes young adults pressure their parents to hold onto a home. If you’re one of those folks who’s just left the nest and you suspect that your parents are hanging onto the home just for memory’s sake, a little conversation goes a long way. Let your parent or parents know that you want the best for them, and if that’s a newer, easier-to-maintain home, that’s OK by you. Often, giving a parent gentle encouragement to move on, frees them up to make the decision they know they should make: to sell and downsize.

There’s so much inventory out there. Who’s even going to stop to look at my house? It’s true: in this market, there are a lot of options out there for buyers. But sellers who lament a flurry of potential competition often use this as a bad excuse not to sell. Many real estate professionals these days know a lot about preparing a home for sale, including conducting a home inspection to clearly understand the condition—and value—of your home. Speaking with a real estate professional can give you inspiration and ideas that you never imagined regarding how to distinguish your property. That’s the thing about selling your house: you don’t have to go it alone. In the best case, you can enlist a team full of great ideas.

The housing market’s down. The Federal Reserve recently noted that after losing ground in the spring, Americans’ wealth grew 2.2% throughout July-September, and household net worth rose to nearly $55 trillion. But despite this, the value of real estate holdings sank 3.7%. It’s true, the real estate market truly hasn’t fully recovered, and it would be disingenuous to sugar-coat it and say that you’ll easily get your ideal asking price in a week if you sell. But still, too many people read the second statement above—home prices are down—without taking it in stride with the first: things are improving overall. A lot of us focus on bad news without looking at the good. Home values have not fully rebounded. But the increase in Americans’ wealth means there are more people with cash freed up to buy. Also, these figures don’t take geographical areas into account. Your area might be doing better than the national average; values aren’t depressed in every single market. The best way to know what’s best for you is to ask a trusted real estate professional. Communication is the key to success, rather than hiding when you see a negative headline.

Best Cities for Home Values: San Diego Ranks 5th

San Diego homeowners have something to cheer about.

A new Forbes list predicts that America’s Finest City will be among the 10 cities where home values are expected to rise the most in 2011.

San Diego is not the only California city rounding out the top 10 – markets in San Jose and Santa Ana, are also expected to see a boom.

Forbes enlisted the help of Local Market Monitor (LMM) to track 315 American real estate markets. “They then analyzed key economic factors that directly affect housing markets: unemployment and job growth rates, as reported by the Bureau of Labor Statistics.”

Currently, the average home price in San Diego is $336,679 and a 2% increase is expected over the next 12 months. The list also predicts a 2% increase over the next three years.

With prices on the rise, Forbes encourages prospective homebuyers in San Diego to act fast.