by Deborah Goonan
According to Community Associations Institute (CAI), Association-Governed Residential Communities make homeownership more affordable:
EXPANDING AFFORDABLE HOMEOWNERSHIP. There has been a persistent effort to increase homeownership in America. In today’s economic climate and housing market, achieving affordability is an ongoing challenge. Without the construction and operating efficiencies inherent in association development and operations, affordability would be an even greater problem.
CAI implies that development of Association-Governed Residential Communities creates a supply of affordable housing. But, if you read carefully, CAI actually states that without the industry’s push to build nothing else but community associations, there would be even fewer affordable housing choices.
So how many Association-Governed projects, specifically, lower-priced multifamily attached condos, are “affordable?”
Well, for a reality check, see this brief, informative video presented by Orange County Association of Realtors. (CA) It explains that FHA and VA loans increase affordability for many homebuyers, requiring lower down payments and more favorable mortgage terms.
However, only 30% of condominium projects qualify for FHA loans, and even fewer condos are eligible for VA loans.
And, according to LA Times Business columnist Kenneth R. Harney, Condos are becoming FHA no-lending zones , an article published in 2014 (excerpts):
The agency has banned so-called spot loans and will insure mortgages only on units in condo projects that have passed a certification process that examines budgets, reserves, insurance coverage, percentage of renters in the development, and delinquencies on payment of condo fees.
The procedures weed out fiscally weak, poorly managed developments and reduce taxpayer exposure to future losses, the FHA says. Condominium boards, on the other hand, contend that some of the evaluation criteria are too strict and that the certification process is bureaucratic and costs them money they’d prefer not to spend.
FHA financing is important because of the special niches it fills. Among the three major federal lending intermediaries — Fannie Mae and Freddie Mac are the other two — the FHA is the most flexible on credit issues. It is also lenient on debt ratios and allows down payments as small as 3.5%.
As a result, the FHA has been the go-to mortgage option for moderate-income buyers for decades and has been a key resource for African American and Latino buyers, many of whom have made their first purchase in a condominium development.
If you’re a buyer looking for an affordable home, or an owner that wants to sell your condo, and the condominium project is not FHA approved, that begs two questions:
- Is the project not on solid financial ground and/or does it have a high percentage of absentee landlord owners, posing a high financial risk for buyers and lenders?
- Does the condo association that might otherwise qualify for FHA approval simply prefer not to sell to groups of people with lower incomes?
Bottom line: after 5 decades of HOA and condo construction, we still have a housing affordability crisis, with a high percentage of financially risky condo projects and exclusion of lower-income households.