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February 18, 2005

**[VIA U.S. MAIL]{.underline}**

Attention: Vance C. Morris

Regulations Division

Office of the General Counsel, Room 10276

U.S. Department of Housing and Urban Development

451 7^th^ St. S.W.

Washington, D.C. 20410-0500

Re: [Doc. No. FR-4911-I-01; HUD-2004-0017]{.underline}

[Prohibition of Property Flipping in HUD's Single Family Mortgage
Insurance]{.underline} [Programs; Additional Exemptions to Time
Restriction on Sales]{.underline}

Dear Mr. Morris:

The National Association of Responsible Home Rebuilders and Investors
("NARHRI") is pleased to submit this comment letter regarding the
above-referenced Interim Rule that became effective on January 24, 2005.
NARHRI is comprised of individuals and small businesses engaged in the
activity of re-building and re-selling homes, as well as investing in
that industry. Our members offer thousands of consumers the opportunity
to own homes, and they help revitalize communities by rehabilitating
homes in disrepair. NARHRI members are subject to a Code of Ethics, and
while they are often engaged in the practice of short-term re-sales of
rehabilitated property, they do not engage in the underlying acts of
fraud that are of concern to HUD. NARHRI seeks to remove perpetrators of
fraud from our growing industry because these acts by a fraction of
individuals within the industry continue to produce negative
consequences for the industry as a whole.

**[HUD's Definition of Property "Flipping"]{.underline}**

In Section I of the Interim Rules, HUD defines property "flipping" as:

> "...a predatory lending practice whereby a property that was acquired
> is quickly resold for a considerable profit with an artificially
> inflated value, often abetted by a mortgagee's collusion with the
> property appraiser and others involved in the mortgage loan
> transaction."

NARHRI believes that this definition unfairly links the time in which a
property is sold with separate and unrelated acts of fraud, including
mortgage lending fraud and appraiser collusion. The result of this
definition is that home re-sales in less than 90 days [where no acts of
fraud have taken place and all parties are satisfied with the
transaction]{.underline} are subject to the prohibition to obtain FHA
mortgage insurance. While NARHRI supports the intent of HUD to protect
consumers from predatory lenders, the actual impact the way in which HUD
defines property flipping is much more harmful to the many legitimate
transactions which occur in less than 90 days, rather than the few
fraudulent transactions.

NARHRI defines a property "flip" as the short-term re-sale of a
residential property, usually in less than 90 days. There is absolutely
nothing fraudulent about a property flip. NARHRI is aware of acts of
fraud within the home re-building and investing industry, some of which
occur during transactions in less than 90 days, some which occur in
transactions over 90 days. The time frame of the sale is completely
irrelevant to whether a seller wishes to engage in mortgage lending
fraud or collude with the appraiser to fix the price on a house. NARHRI
is appalled by these actions and supports efforts to prevent them.
However, NARHRI does not support HUD's position that a sale in less than
90 days is apparently always fraudulent. NARHRI can provide far too many
examples from both the private sector and non-profit organizations for
HUD to continue to hold this untenable position.

**[Potential Negative Impact for Consumers, the Industry and the
Economy]{.underline}**

NARHRI believes that if HUD continues its assault against the home
re-building and investing industry, serious negative consequences will
be felt by consumers, the industry and the overall real estate market.
For consumers, this means less access to the market and increased
prices. NARHRI is aware from our members and from information obtained
from non-profit organizations that a major decline has taken place in
FHA financing for perfectly legal and legitimate transactions. This is a
direct result of HUD's linkage of the time frame of the sale and
unrelated acts of fraud that may occur during the course of the
transaction. Also, because our members have been required to hold
properties, it has inflated the price of the properties due to holding
costs and thus inflated the price for consumers. While this certainly
was not the intent of HUD, it is an unfortunate and very real
consequence of the FHA mortgage insurance prohibition. NARHRI fully
supports the Bush Administration's call for an ownership society, and
our members help people live this dream every day. We ask that HUD also
support the President's vision by ending its linkage of the time frame
of a property sale and unrelated acts of fraud that may or may not occur
within the transactions. Consumers and the industry have already felt a
negative impact.

Any further action taken by HUD beyond the already damaging prohibition
of FHA mortgage insurance for transactions in less than 90 days will
cripple the industry I represent, as well as many non-profit
organizations. These are small business and entrepreneurs that are
engaged in [legal and legitimate]{.underline} property re-sales in less
than 90 days who are being driven out of business by well-intended
regulations that are targeting those engaged in fraud but also those not
engaged in fraud. Our industry does comprise an important percentage of
the overall housing market, and negative consequences for our industry
will be felt throughout the entire market. HUD should carefully consider
any further action regarding its regulations governing property flipping
and focus future actions on preventing fraud, not restricting access to
mortgage insurance simply because a transaction occurs in less than 90
days.

**[Expansion of the Exemptions to Cover Government Agencies and
Inherited Property]{.underline}**

NARHRI takes no position regarding this Interim Rule which adds
additional exemptions to time restriction on sales for all government
agencies and inherited property. NARHRI does suggest that HUD address
the glaring problem inherent in the original regulation, which is that
it is applicable to transactions where no fraud takes place. Section
203.37a, which prohibits FHA insured mortgage financing for any property
sold within three months after acquisition by the seller, must be
revisited. The problem with this section of the original regulation is
that it does not address fraud, it addresses time frame of the
transactions. The result is that transactions conducted in less than
three months are ineligible for FHA insured mortgage financing, even if
they are not fraudulent.

**[The Original Regulation Fails to Comply With HUD Policy Regarding
Rehabilitated Affordable Housing]{.underline}**

By denying FHA insured mortgage financing and forcing sellers to hold
the property and thus increasing holding costs, the original regulation
increases costs for consumers, many of whom live in low and
middle-income areas. A February 2005 HUD report, "Why Not In Our
Community? Removing Barriers to Affordable Housing" states:

> "A policy, rule, process, or procedure is considered a barrier when it
> prohibits, discourages, or excessively increases the cost of new or
> rehabilitated affordable housing without sound compensating public
> benefits."

NARHRI simply would pose the question: How can there be "sound
compensating public benefits" to impeding re-sales of property in less
than 90 days [in those instances where fraud does not take
place?]{.underline} NARHRI embraces HUD's new stance on making
affordable housing more available by eliminating costly regulations.
NARHRI recommends that HUD review its policy regarding denying FHA
insured mortgage financing for re-sales in less than 90 days because the
regulation as it stands now impacts both legitimate and fraudulent
transactions.

NARHRI appreciates the opportunity to address our concerns during this
comment period and looks forward to working with HUD in the future to
protect consumers and the home re-building and investing industry.

Sincerely,

John P. Grant

Executive Director