Public Policy

November 5, 2001
VIA HAND DELIVERY
Regulations Division
Office of General Counsel
Room 10276
Department of Housing and Urban Development
451 Seventh Street, SW
Washington, DC 20410-0500

RE: Prohibition of Property Flipping in HUD's Single Family Mortgage Insurance Programs
Docket No. FR-4615-P-01

To Whom It May Concern:

The Lawyers' Committee for Civil Rights Under Law ("the Lawyers' Committee") is a nonpartisan, nonprofit organization, formed in 1963 at the request of President John F. Kennedy to involve the private bar in providing legal services to address racial discrimination. The Lawyers' Committee is committed to improving lending opportunities for minorities and holding lending institutions accountable for discriminatory practices. Because of the work of our clients and affiliates across the country, we are concerned about the dramatic impact of predatory lending practices, such as property flipping, that strip minority and low-income communities of wealth and leave those who have been victimized by these abusive practices in financial straits. Property flipping, which can result in profits as high as 1000 percent, also threatens the financial existence of the FHA loan program, which has played an invaluable role in providing homeownership opportunities to members of minority and low-income communities.

Below are the Lawyers' Committee's specific comments regarding the proposed rulemaking regarding the prohibition of property flipping in HUD's Single Family Mortgage Insurance Programs:

I. A Waiting Period For Property Sales Should Be Imposed, But Empirical Data Should Support The Adoption of an Appropriate Timeframe.

The Lawyers' Committee believes that a six-month waiting period can help to eliminate the most extreme cases of property flipping in which properties are bought and resold, within only days, at artificially inflated prices. While it will be a useful step to prohibit FHA financing to properties sold within six months of acquisition, HUD must ensure that empirical data supports the adoption of a six-month period, as opposed to a longer period such as a year. Accordingly, the Lawyers' Committee recommends that HUD investigate, through whatever data is available, whether a significant number of property flipping cases occur after six months and to adopt a final rule that is supported by a thorough analysis of the data in HUD's possession.

II. FHA Financing Must Be Restricted To Transactions Involving the "Owner-of-Record."

The Lawyers' Committee also believes that requiring transactions to involve the "owner- of-record" will help to ameliorate the worst instances of property flipping. This is so because requiring the seller to actually purchase the property will impose on the seller a risk of loss for the investment and any costs associated with the purchase. This risk will deter some lenders from engaging in this predatory practice.

III. HUD Should Adopt A Less Staff-Intensive Exception Process, Such As A Reasonable Threshold Under Which All Sales Are Presumptively Valid.

The Lawyers' Committee also agrees with HUD that exceptions to the proposed rule should be adopted. Situations arise where a homeowner might be forced to sell his or her property in a short timeframe; these legitimate transactions should be permitted. The Lawyers' Committee, however, is concerned with the proposed exceptions because of their staff-intensive nature. We question whether HUD has the personnel to manage effectively the envisioned case- by-case review process. Instead, the proposed rule should find that all transactions that involve an increase in price that is commensurate with the local housing market are presumptively valid. These conditions should be articulated through additional guidance from HUD, making use of available indices of local housing market costs.

Accordingly, we urge HUD to address the problems of property flipping consistent with our comments as set forth above. We believe that the changes advocated above are a necessary first step to curbing this predatory lending practice. Should further explanation be required on any of the discussion points above, please feel free to contact Ms. Cheryl Ziegler, the Director of our Housing & Community Development Project. Ms. Ziegler may be reached directly at (202) 662-8331.

We thank you for soliciting and reviewing our comments.

Sincerely,

Barbara R. Arnwine
Executive Director

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