By: Karen Goldberg Goff
Special to the Washington Examiner
April 28, 2010

A government decision to temporarily suspend rules that prohibit using Federal Housing Administration financing to buy a house a seller has owned for less than 90 days has had little effect on the market, area real estate experts said.

To boost sales in areas ripe with foreclosures, the Department of Housing and Urban Development on Feb. 1 announced it was expanding access to FHA insurance for loans by temporarily suspending the 90-day rule.

The one-year waiver was supposed to help both borrowers and communities. Potential buyers could use FHA financing to purchase HUD-owned properties, bank-owned homes or properties from private sellers — many of whom were investors looking to renovate foreclosed, sometimes damaged, homes and quickly resell them. Ideally, houses would sell more quickly, stabilizing prices and reducing the number of bank-owned homes, a HUD spokesman said.

However, several Washington-area brokers say caveats to the rule mean the waiver has had little effect. For sellers who have purchased a property, made improvements and offered if for sale within 90 days, a sales price of 20 percent more than the previous purchase price triggers a verifying, second appraisal by the lender.

“I don’t really think it has done much of anything,” said Danilo Bogdanovic, a broker with Market Advantage Realty in Northern Virginia who follows the local foreclosure market through his Web site, loudounforeclosures.com.

“If you are flipping a property, you would be crazy to do it with less than a 20 percent profit,” Bogdanovic said. “You can wait till the 91st day and the FHA may still need a second appraisal. So it really has not done anything.”

The FHA’s “anti-flipping” rule was put into place to ensure potential buyers were not being taken advantage of in a hot housing market.

“Now that everyone is so paranoid and the rules have become more stringent, it is not as relevant,” said Frank Llosa, a broker with Frankly Realty in Falls Church. “Lenders and everyone are on high alert, and there is less opportunity for shenanigans like hiring a shady appraiser.”

The National Association of Realtors says it supports the temporary waiver. The Washington area, while not hit as hard as some areas of the country, has an average foreclosure rate of 2.9 percent.

“The thought is if you could let prior investors get back in and [let buyers] borrow with an FHA loan, it would go a long way towards getting some foreclosures off the market,” said Jerome Nagy, senior regulatory policy representative for the NAR.

However, in general, Nagy said, the NAR likes the no-flipping rule.

“For FHA borrowers, it lets them buy good, quality homes and also protects the insurer [FHA] and the borrower. But if you can’t verify why it is worth 20 percent more, it is not going to get through.”

Nagy said the NAR will continue to monitor the waiver and see how it is working.

“We will look at the impact,” he said, “but likely closer to the end of 2010.”

http://www.washingtonexaminer.com/economy/real-estate/first-time-buyers/Experts-say-waiver-of-FHA-anti-flipping-rule-has-had-little-effect-on-the-market-92285139.html