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HUD No. 10-011 Lemar Wooley (202) 708-0685

FOR RELEASE Friday January 15, 2010

• Freddie Mac ‘s “Best Practices for Loans Involving Possible Property Flips” was issued October 9, 2009 to its servicers and explicitly states that resales after a distress sale as a result of a Short Sale, bankruptcy, tax lien sale or bank-ownership are legitimate as long as they are arm’s length transactions with full disclosure to all involved parties about the nature of the sale. Appraisals must also be arms’ length and not involve properties that have been artificially inflated in value. As long as transactional funding, intent to resell, and other disclosure requirements are met and there is no attempt to defraud the end Buyer with an overly inflated price, Freddie Mac will look at backing the deal.
• Attorney’s Title Fund Service in a September 4, 2009 bulletin to its underwriters and agents indicated that Short Sales with an intermediary would be insured provided there is full disclosure about the nature of the sale and all disbursements are made exactly as they are stated on the HUD-1.  The intermediary’s “right to sell for a profit” must be clearly stated.
• As we mentioned a week ago Wells Fargo just sent the bulletin to its officers that “due to current market conditions having a large volume of distressed properties, the existing policy of not allowing financing for flipped properties has been revised. Legitimate property flipping transactions are now eligible to be financed by Wells Fargo Home Mortgage…” The requirements for validating a legitimate flip are all within the range of practice that we recommend to our Investors and their Agents.

Flipping houses in a Tough Economy CNNMoney recently ran an article about how small businesses can survive in a slumping economy. If you are interested in flipping houses and are worried about the current shaky market, the advice offered is certainly something you will want to take to heart: 1.Increase marketing efforts. Small business owners who were around during the shaky economy of 2001 saw competitors go bankrupt when they cut back on advertising. A bad economy or tough market is no time to sit back on your heels – you need to go after new business aggressively, because customers are what will see you through the tough times. 2.Target a broad client base. Going after low-end customers will see you embroiled by price wars and defections. Even during a bad economy, there is a segment of the wealthy population that can afford to spend – and spend big. If you want to survive a tough market, make sure that you target at least part of your efforts towards this market. Just don’t put all your eggs in the same market. Higher-end customers are less affected by a tough economy and will continue to buy after everyone else has stopped. Commercial buyers may also continue to need your services and properties even after residential buyers scale back. 3.Look to where there is opportunity. During the 2001 recession, technology and travel industries were hit hard while in this coming recession it looks as though real estate will be the target. If you are a real estate investor, this can be a tough pill to swallow, but don’t bother bemoaning the fates. Instead, focus on what the recession can bring you -- inexpensive credit, slashed-price equipment and property, and a chance to hire great employees that have been let go by their current employers. The smart investor can parlay these advantages into an empire. 4.During the recession, switch tactics. Recessions always end, but while you are in one, make sure that you understand what you are doing – especially if you are taking part in something risky like flipping houses. During a recession, larger companies offload their marginally profitable customers and aggressively pursue higher-end customers. This means that if you are a smaller business, you can get these marginally profitable customers if you strategize. 5.Focus on the customer. In boom times when everyone has money to burn on a new home you may not have to do much to resell a property you have renovated. The fact that the home is an attractive price, a good look and in a good area is usually enough to move it quickly – and if the market is good enough you don’t even need these three things to sell fast. In a tougher economy, though, you can’t just be thinking of your bottom line. You need to be thinking about your customer and their needs. Who are the home buyers in this economy? What are they looking for? What do they need? What are they having a hard time finding? Talk to and really listen to your customers and do your own research. Change your tactics based on what you learn and you will find new customers while your competition can’t make ends meet. 6.Realize that holding steady in a bad economy may be as good as huge growth in a bad economy. Especially in current conditions, when real estate investors will be hit hardest, holding onto what you have without losses may be the best way to ride out the tough times. 7.Do what other businesses won’t. Some investors are already finding that traditional lenders are running scared and even buyers who can make payments are often turned down for home loans. Being able to offer owner financing provides you with another service to offer and allows you to really help customers – and customers reward that kind of service with their dollar. 8.Diversify. Smart investors think on their feet. If their profits in flipping houses drop, they look for other ways to make money. They rent some homes, lease others to businesses, offer owner financing on others and generally look for a few ways to make money. This helps ensure that even if one side of their business sustains a hit during tough times, there is enough money coming in to keep their company afloat until new opportunities come knocking.

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