FHA 90 Day Anti-Flipping Rule Under Attack

Real Estate Agent with 1st Action Real Estate

carIn addition to the Action Items summarized in the previous article, CAR Legislative Agenda Shapes Up, there was another Action Item that came before the 526th Board of Directors session on October 10, that being a motion from the Real Estate Finance Committee. 

By way of background, here's a brief primer on how things happen at our state association level. Any member can bring forward an issue through their local association representatives for consideration at the state level. The matter is brought into the committee structure so that a decision can be made on whether the matter is appropriate, whether the impact is significant and what action should be taken. I mean, face it - Just because you've got a beef about a local lockbox issue or had a problem with some lenders short sale negotiator may not qualify the issue for consideration by a state committee. 

If the committee determines the issue is of sufficient import to tackle it, it will be placed on the agenda for discussion along with supporting documentation. The committee will then determine what, if any, action should be taken.

Should they decide to recommend some form of action they will determine whether they will go forward with a request to SPONSOR a bill, SUPPORT a bill that's already in process or just ask CAR to devote some staff time to further research the most appropriate course of action. That recommendation, in the form of a motion or report, will then proceed from the originating committee to a policy committee, generally the Legislative Committee. That committee can decide to approve the committees motion, oppose the motion, or draft an amended version. One or both motions will then proceed to the Executive Committee where they will look at it, approve it for the general session agenda, draft an amended or competing version or, in rare instances, oppose the motion.

One such motion came before the session on Saturday having to do with the current FHA 90 day anti-flipping rule. Originally drafted in 2001, the FHA rule was intended as a consumer protection back in a day when FHA loans, especially in California, were the exception rather than the rule. Due to the FHA's unwillingness to keep pace with escalating prices, again especially in areas like California, the use of FHA mortgages fell to single digits by 2005 contributing to the widespread reliance on sub-prime and other more exotic financing methods. 

Today FHA loans are becoming more the standard again with increased loan limits in our area. This is especially true for first time and other low-to-moderate range buyers, currently estimated to account for as much as 40% of todays loans statewide. The anti-flipping rule, originally intended to prohibit investors/intermediaries from acquiring cheap homes and simply 'flipping' them with no value added thereby driving prices up, doesn't really apply in this market. In fact the argument was made that investors play a very significant role in todays market buying abandoned and stripped foreclosures that would not qualify for an FHA loan to begin with. They rehab the home, often within 30 days, and then put a move-in-ready home on the market (at market price, not inflated). But 40% of buyers who might otherwise qualify for that home with an FHA loan cannot because of the anti-flipping rule.

As you might imagine there was substantial debate at every level of advancement for this motion. But when it came to the floor on Saturday it carried an almost unheard of prohibition - a recommendation from the Executive Committee that the motion be defeated. Why? Their stated reason had little to do with the particulars of the rule or the motion but a general caution that in todays political climate of increasing regulation, they simply didn't think this was a winnable fight.  HONEST.

After about 45 minutes of spirited back-and-forth on the motion before the general assembly, members delivered a stinging rebuke to Exec. Not only was it determined that C.A.R. in conjunction with NAR 'SUPPORT' the elimination of the anti-flipping rule, an amendment was inserted telling CAR we want them to write a letter to the FHA Commissioner and others appropriate parties advising them of our opposition to the rule. NOW. 

It's kind of fun to see the members get riled up sometimes. In an environment that at times resembles a convention of rubber stamp politics as usual, passion can carry the day. Enough of our member/Directors realize the impact this is having on you and your Buyers and decided political correctness and/or lack of balls be damned. This was the right thing to do and we're by God gonna do it. 

Will it result in an immediate change? Not likely. But the message is being delivered. As we continue to define what is the new 'normal market', your Association of Realtors will be at the table assisting in that process. It was a proud moment to stand up and be counted.


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  1. Donald Bradbury 10/13/2009 07:47 PM
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Comments 30 New Comment

Bill Ladewig
Your FHA Guru - FHA and VA Loans Since 1970

Gene, good for CAR and NAR.  Lets hope they can change some minds. 

October 13, 2009 12:09 PM
Renée Burrows
Las Vegas Real Estate Broker - www.urLVhome.com
Savvy Home Strategies Realty, LLC-REALTOR®-Estate-Probate

People are buying at the trustee's sales here.  Foreclosures are exempt from the anti-flipping rules so (at the very least) the trustee's flips should be exempt too! 

October 13, 2009 01:27 PM
Christine Donovan
Broker/Attorney 800-610-7253 DRE01267479 - Costa M
Donovan Blatt Realty

This is a problem that keeps cropping up for my FHA buyers and limits their options in an already limited market where we have very little inventory in the lower price ranges.

October 13, 2009 11:03 PM
Harrison K. Long
business, REALTOR , GRI, Broker
Coldwell Banker Previews, Irvine, South OC

Gene ... Thanks for this post, and it's good news that C.A.R. board of directors joined with NAR 'SUPPORT' for the elimination of the FHA anti-flipping rule.  Also interesting that there was heated debate resulting in positive action. 

Did I get this right?  CAR must send letter to the FHA Commissioner and other appropriate parties advising them of CAR opposition to the rule?  Sounds good to me.

October 14, 2009 11:50 AM
Gene Wunderlich
Realtor & Legislative Liaison
1st Action Real Estate

Lots of debate - but the overwhelming sentiment, as reflected in the comment string here, is that in this environment the rule is doing way more harm than good and disenfranchising up to 40% of potential buyers 9in CA) at a time when it's hard enough to qualify for a lower end home.

Yes. The original motion was just for CAR to support NAR in the elimination of the rule. But when Exec got involved members snapped back and said - Alrighty then, not just 'support' NAR but get your suport out there for everybody to see - write a letter to Commissioner Stevens letting him know we support the elimination. I'm sure there will be more discussion next month when Mr. Stevens visits us at NAR.

October 14, 2009 12:05 PM

Gene Wunderlich

Realtor & Legislative Liaison
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