The Truth About Mortgage Flipping
The mortgage flipping scheme may have succeeded in the previous years but authorities are now wary about this and are doing everything to curb this scam. Many people have already been arrested across the U.S. and investigated for their involvement in mortgage-fraud groups. This scheme common in the subprime mortgage lending market has victimized lenders and homebuyers causing the federal government to impose more stringent rules on acquiring mortgage loans.
Mortgage flipping happens when a lender induces a borrower to refinance a loan several times most often in a short period of time and charges high interest rates and servicing fees each time. Many of the loans involved are the adjustable rate mortgages (ARMs) carried by subprime borrowers. It also happens when an investor buys a property lower than its market price and applies for a huge mortgage loan using fake and bloated appraisals. These false appraisals usually use stolen appraiser license numbers. When the loan is finally taken out, most of the time it is never repaid.
This scheme actually involves not only the real estate investor but the appraiser and loan officers who are also in cahoots in victimizing innocent homebuyers notably the first timers. Unaware to them, these purchasers pay so much more than the fair market value of a house or they are overcharged for costs in obtaining a mortgage loan. The Federal Housing Administration (FHA) also revealed that some investors and lenders even go to the extent of faking the income levels of homebuyers and let them buy properties with inflated prices.
So what's the government doing about this? The FHA has actually carried out anti-flipping regulations on mortgages insured by this government agency. No loans will now be granted to borrowers who sell their homes within a year after buying the property without the necessary additional documents. Loans for resales done between 91 and 180 days will only be approved on condition that the lender secures a second appraisal from an independent appraiser if the price involved is 100 percent or more than the previous value.
The FHA says its new restrictions are meant to discourage fraudulent sellers, lenders and appraisers from flipping real estate but at the same time, it does not want to be so strict with legal home renovation projects. In areas where flipping is a big issue, lenders will be required to get additional documents to support the submitted appraisal.
Meanwhile, only the real owner of the home is allowed to sell the property to a buyer who applies for an FHA-insured mortgage loan. Otherwise, no FHA insurance will be granted.
If you're a real estate investor or just somebody looking for a good home to live in, always be careful when dealing with lenders. The best thing to do is do your research and consult experienced realtors as well as financial advisors. Make sure you're transacting only with legitimate lenders in your area to avoid being victimized by mortgage flipping rings. Rest assured that the federal government through the Department of Housing and Urban Development (HUD) is taking the necessary steps to curb the ongoing mortgage abuses and protect homeowners from abusive lending practices.
Related Article: How to Get a Loan to
Flip Properties
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