In June, the Task Force announced a Fraud Prevention Plan that may, for the first time, actually prevent future property flipping using FHA financing. Rather than place the onus on the buyer not to overpay, this approach places the responsibility on FHA to make certain properties are not overfinanced. New systems will be designed and implemented to identify flipped properties before they are insured and to monitor the track records of appraisers and mortgage brokers, modeled on the recently implemented Credit Watch program for Lenders. Lenders, appraisers, and brokers whose loans default at above-average rates will be suspended from FHA participation. Furthermore, FHA will institute early warning indicators to identify high-foreclosure zones that may have been subject to property flipping and mortgage fraud leading to the higher default rate and target those areas for intensive investigation as they have done in Baltimore.
Numerous problems remain.
HUD Inspector General Susan Gaffney is concerned about exactly how all this will be implemented, who will do it, and who will pay for it. Probably the larger concern is that in most markets, including Baltimore, the vast majority of property flips are not financed by FHA but in the private mortgage market. This portion of the market does not have a Fraud Prevention Program. It may be that local governments will have to institute ones that cover all lenders. In the meantime, community advocates and activists should learn to recognize and monitor property flipping in their own neighborhoods.