Posted by tang-0-rang on February 07, 2002 at 16:41:30:
Let the wicked fall- and the honest stand tall!!
just my thoughts
Todd Williamson (CO)
The end of flipping? - Posted by Charles
Posted by Charles on February 07, 2002 at 05:55:25:
I found this article and I thought it would be of interest to this group. Feels like someone slashed my tires before I was going on the journey of a lifetime.
This probably doesn’t apply to us honest folks but maybe the crooks will ruin it for all of us. Time will tell.
----------pasted article below------------
The Bush administration has unveiled its first major assault against predatory mortgage lending: A cut-off of Federal Housing Administration (FHA) mortgage insurance for property “flippers.” Under a proposed rule published last week, FHA insurance no longer would be available on houses sold within six months of acquisition by the seller.
Flipping involves rapid resales of houses – usually at artificially-inflated prices – allowing the seller to pocket substantial profits. For example, say an investor buys a rowhouse in a central city neighborhood for $40,000. Barely a week later, having made a few cosmetic repairs, he turns around and flips the property – offers the house for sale to unsophisticated first-time buyers at $80,000, with almost no downpayment.
Working through a cooperative lender and appraiser, the seller gets the house appraised fraudulently at the full $80,000 asking price. The buyer puts down less than $1,000 and gets an FHA-insured mortgage.
After the flip, what do we have? For starters, we have a borrower who now “owns” a $40,000 house that he bought for the inflated price of $80,000. We also have an FHA mortgage covering most of that $80,000, the net proceeds of which – say $38,000 or more in this example – went into the pockets of the sellers, the appraiser and the loan officer. When the buyers default because their income and credit never really qualified for the mortgage or the house in the first place, who’s holding the bag? Why it’s the FHA – the federal government – which provided 100 percent insurance to the lender against loss in the event of a default.
Flips like these have become an epidemic across the country in recent years. Hundreds of houses have been involved in FHA flipping scams in places like Baltimore, New York, Los Angeles and elsewhere.
As one Baltimore-area mortgage broker put it, “this is not rocket science. It’s easy. You need a friendly appraiser, you need somebody to get you through the (FHA) hoops, and you can make very good money.”
The new FHA proposal would attempt to close down this mis-use of the federal mortgage insurance program by forcing sellers to hold properties for at least half a year. It would also restrict FHA insurance to properties purchased from the “owner of record” on the title at the county courthouse. This would effectively derail scammers from flipping purchase contracts – the right to acquire the house – at inflated prices. In this scenario, the rowhouse investor would sells or assigns his purchase contract to the $40,000 property to a second party – say for a quick $10,000 or $15,000. The party acquiring the contract to the house then either sells to the first-time homebuyers or flips the contract still again.
Flipping chains like these have been documented repeatedly by the Office of Inspector General at the department of Housing and Urban Development (HUD), parent agency of FHA.
Under the proposed regulation, there would be limited exceptions to the six month rule. These include:
Sales where the lender or applicant could document that the sales price “reflects a rapidly-appreciating real estate market,”
Certain HUD-owned property sales, or
Cases where the house is being sold at a below-market price because of distress conditions or a sale to satisfy taxes owed.
FHA is accepting comments on the proposal from the general public until November 5.
Comments must refer to the proposal by name (Prohibition of Property Flipping in HUD’s Single Family Mortgage Insurance Programs) and docket number (FR-4615) and must be sent to:
Joseph F. Lackey, Jr., HUD Desk Officer, Office of Management and Budget, New Executive Office Building, Washington, DC 20503; and
Ethelene Washington, Reports Liaison Officer, Office of the Assistant Secretary for Housing-Federal Housing Commissioner, Department of Housing and Urban Development, 451 7th Street, SW., Room 9114, Washington, DC 20410
Charles A.
Re: The end of flipping? - Posted by Rob FL
Posted by Rob FL on February 07, 2002 at 21:09:31:
The comment period on this expired back in early November 2001. I sent in my letter of objection and hopefully so did alot of other investors. I know the National Association of Realtors did a letter writing campaign to HUD to show their disapproval. Who knows what will happen here.
Re: The end of flipping? - Posted by Tom (GA)
Posted by Tom (GA) on February 07, 2002 at 14:11:23:
That article is very old news. Search the archives for more responses.
How would this affect lease/options? - Posted by Suzanne
Posted by Suzanne on February 07, 2002 at 13:22:51:
“forcing sellers to hold properties for at least half a year. It would also restrict FHA insurance to properties purchased from the “owner of record” on the title at the county courthouse.”
In the above wording it says that the person can only buy the house from the owner and not the person with the option. With a option you do not own the property and are looking for the buyers to find new financing. What if all banks follow FHA regulations on this?
Also, this would force sellers to hold on to the property for at least six months. This would not be a problem since most lease/options last at least a year. The problem is that the investor does not own the property directly even though he or she has had control of the property for at least a year. Or would the wording be construed that the seller (not necessairly the owner) has to have held the property for at least six months. In this case the lease/option would not be a problem unless the buyer is trying to obtain a FHA loan.
Also, what about pure options where the investor is looking to sell directly to the buyer in six months or less? The investor does not own the property, nor has held it for at least six months.
Or would this just force the investor to revert to sub2 deals, 100% owner financing, and any other type of deal where the investor would become the owner. Then after the investor takes control or owns the property has to lease/option the property for at least six months before being able to sell it?
One last thing, some gurus say you can raise the price of the lease/option since there is a greater demand for them. I took this to be maybe $1000 or $2000 above the value of the house. What do you think about this stragiety and how it will be affected if the new rule takes effect?
Do you think the next thing the government will go after is … well I rather not give them any ideas if they happen to be reading this board.
Bring it ON! MORE Profit for the seller . . . - Posted by TxRae
Posted by TxRae on February 07, 2002 at 12:33:07:
who chooses to carry his own paper. Suddenly we have a TON of people who like the house but can’t get in with FHA financing.
Guess my perspective is unique, but it sounds like an OPPORTUNITY to me . . . !
But what I get here is that flipping is not the issue, but MORTGAGE FRAUD, because of the claim that . . .
" . . . buyers default because their INCOME and CREDIT never really qualified for the mortgage or the house in the first place . . ."
Sounds to me like the problem is not the house, it’s the PEOPLE involved in the transaction.
" . . . who’s holding the bag? Why it’s the FHA – the federal government – which provided 100 percent insurance to the lender against loss in the event of a default."
Personally, I think perhaps they should have gone after the purchasers (yes, the BUYERS) who might have KNOWN that their INCOME and CREDIT didn’t qualify if they in fact defaulted on this type of situation, had they taken the time to LEARN more about the home buying process and the normal requirements of the industry. After all, doesn’t HUD offer this type of information? GO AFTER THEM UNDER RICO STATUTUES as a corrupt organization as part of a conspiracy!
Extreme, yes. I’m not saying the mortgage broker and appraiser aren’t at fault, I’m just saying that the BUYER should bear some of the responsibility as well.
One more example of how the government has the facts and can’t figure out what to do with them . . . !
Re: The end of flipping? - Posted by JFinke KC
Posted by JFinke KC on February 07, 2002 at 12:22:56:
This regulation, in my opinion, is not going to damage flipping as severely as you think. First off, it only applies to FHA insured loans. Although they are very common, not all loans are FHA insured. Does anyone know what percentage of loans are FHA?
Although there are many so-called investors that prey on uniformed first timers, most flipping is done from one investor to another and rarely involves FHA loans (just what I’ve seen).
You are also overlooking the most important part of the regulation; the exceptions:
-
Sales where the lender or applicant could document that the sales price “reflects a rapidly-appreciating real estate market,”
-
Certain HUD-owned property sales, or (most importantly)
-
Cases where the house is being sold at a below-market price because of distress conditions or a sale to satisfy taxes owed.
The term “distress conditions” is very broad. Although most would take it to mean the house is in poor condition it could also be construed to include financial distress. Thusly, bailing a homeowner out of financial ruin for a profit on the equity involved could be a purchase and resale of a “Distressed” property. This, however, is something for the lawyers to battle with. Rehabbers would certainly fall into exception 3.
I’m sure there are several other loopholes one could find. As long as you are conducting your business honestly, I don’t think this regulation is that big of a deal.
Other opinions are certainly welcome.
Good Luck,
JFinke KC
Ever Heard of THIS? - Posted by Hugh Gaugler
Posted by Hugh Gaugler on February 07, 2002 at 09:13:28:
Food for thought:
The US Constition, Article 1, Section 10, Clause 1 says:
“No State shall…pass any…Law impairing the Obligation of Contracts…” (see full text below)
Then, in the US Bill of Rights, we find Amendment X to the Constitution:
“The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.”
However, something one will NOT find in the Constitution or the Bill of Rights, but which reflects the reason why we have restrictive reglatory problems, is this: “The representatives of the people may pass any law they so desire, thereby placing restrictions on the people with impunity, so long as the people are ignorant of the Constitution and the Bill of Rights”
Beyond that, the real problem is that there is no penalty for violating the Constition or its Amendments! Imagine the long term effectiveness of any law that spells out no punishment for the offense it is designed to combat! Perhaps we need a new amendment, one that enumerates specific punishments for those who would, for whatever reasons, violate the Constitution and the Bill of Rights.
What do you think: Is it true that we, as some say, are living in “Post-Constitutional America”? Or is there a way we can still assert the “power of the people” alluded to in Amendment X of Bill of Rights?
---- Hugh
The full text of Article 1, Section 10, Clause 1 of the US Constitution is as follows:
“No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.”
Re: The end of flipping? - Posted by JoeS
Posted by JoeS on February 07, 2002 at 07:35:45:
Big Brother is forever watching out for us! I have several problems with this new intervention proposal. First, the government should be watching more closely the use of it’s own spending. Remember the stories of $300 hammers? Do you think that kind of wasteful spending has gone away? Second, retailers of every industry practise “flipping”, that is, buying low and selling high. Try to buy a $3500 Rolex watch for 10% over cost! Or a $5,000 sofa. What would be the reaction if you told the Lexus dealer that he has to sell you the 1 year old GS400 for 25% over what he gave the poor sucker who traded it in! USED, not new autos are where the dealer makes higher percentage profits than us lowly real estate people, and many times the prices of those autos are higher than what we pay for houses! Is Big Brother watching them? I don’t think so. Third, if the government is worried about the scammers, just change the parameters. A three month seasoning of Title is reasonable, 12 months is not. Disallowing the sale of the contract is unreasonable! This type of real estate transaction has been around for many decades.
Yes, dishonest scammers will suffer, but ONLY until they figure out a new way. Meanwhile, us HONEST guys will suffer the most. We should remind the Big Brother guys that when they point 1 finger at “us”, there are 3 more pointing back at them. Clean up their own yard before they trying to clean up ours.
The bottom line is this: Scammers need to be stopped, yes. But, honest business peoples CANNOT have to suffer! It is one of our freedoms that our forefathers fought for. I hope many honest investors agree with me.
Good point, what about the banks too . . . - Posted by Ben (NJ)
Posted by Ben (NJ) on February 07, 2002 at 14:40:54:
from what I can see, the buyers were approved by the bank to purchase an $80,000 home. Until default occurred, it was irrelevant that the home was only worth $40,000. Why was this buyer approved for an
$ 80,000 loan to begin with? You can’t blame the phony appraisal for that!
Re: Ever Heard of THIS? - Posted by joel
Posted by joel on February 07, 2002 at 17:53:39:
sorry dude–what you posted is totally irrelevant. Say the post office said they were not going to deliver mail on saturdays anymore. That is not a law, merely a change to a federal program.
Joel
Golden rule will always apply. - Posted by NCPaul
Posted by NCPaul on February 07, 2002 at 10:01:10:
I feel your pain, if only we would limit OUR government to it’s Constitutionally mandated size. But if I’m not mistaken, FHA insurance and the loans it facilitates are not a “law” that will be abridging the Constitution. Basically from the way I understand it, changing the policy of the FHA and it’s lending guidelines does not constitute a change in the law. (Since it’s not a law it’s not a law skirting the constitution.) Short and skinny, the Golden rule applies-FHA has the gold and has changed the rules.
Don’t get me wrong, I think this rule change is a crock of it but I doubt a case made by investors will ever reach a court sympathetic enough to capitalism to change the policy.
Good luck