In an effort to stimulate repairs and sales in neighborhoods hard hit by the mortgage crisis and recession, the agency waived its standard prohibition against financing short-term house flips. Before the policy change, if you were an investor or property rehab specialist, you had to own a house for at least 90 days before reselling — flipping it — to a new buyer at a higher price using FHA financing. Under the waiver of the rule, you could buy a house, fix it up and resell it as quickly as possible to a purchaser using an FHA mortgage — provided you followed guidelines designed to protect consumers from being ripped off with hyperinflated prices and shoddy construction.
Since then, according to FHA estimates, approximately 102,000 homes have been renovated and resold using the waiver. The reason for the upcoming termination: The program has done its job, stimulated billions of dollars of investments, stabilized prices and provided homes for families who were often newcomers to ownership.
However, even though the FHA waiver program has functioned well, officials say, inherent dangers exist when there are no minimum ownership periods for flippers. In the 1990s, FHA witnessed this first hand when teams of con artists began buying run-down houses, slapped a little paint on the exterior, and resold them within days — using fraudulent appraisals — for hyperinflated prices and profits. Their buyers, who obtained FHA-backed mortgages, often couldn’t afford the payments and defaulted. Sometimes the buyers were themselves part of the con and never made any payments on their loans — leaving FHA, a government-owned insurer, with steep losses.
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