By Deborah Goonan, Independent American Communities
Those of us who follow legislative issues involving Association Governed Housing need to pay attention to the recent fast-tracking of H.R. 3700, Housing Opportunity Through Modernization Act (HOTMA).
Community Associations Institute and the National Association of Realtors lobbied in favor of HOTMA, mainly because the bill requires the Federal Housing Administration (FHA) to ease mortgage financing requirements for condominiums. The obvious goal of both trade groups is to sell more condominiums.
To be approved for FHA financing, a condo must be located in an association that meets FHA certification standards.
Current standards require that at least 50% of condo units in an association be owner-occupied, they limit the amount of space occupied by commercial owners, and they also prohibit transfer fees.
Experts report that only 10-20% of condominium associations are certified and qualify for FHA financing.
However, new standards included in HOTMA require FHA to change its certification requirements, in the following ways:
- Reduce the required percentage of owner-occupied units from 50% to 35%,
- Allow for increased flexibility with regard to percentage of commercial ownership, and
- Allow Associations to charge transfer fees at the time of sale.
Consumer advocates tend not to see these changes as positive. While these relaxed FHA standards may indeed increase the number of certified condos that qualify for FHA financing, transfer fees are likely to increase borrowing costs, lenders may increase interest rates and mortgage insurance rates to compensate for low owner-occupancy rates, and buyers may ultimately purchase into a financially unstable association.
As we should have learned from the last mortgage crisis, making loans easier to obtain must be balanced against both the borrower’s and lender’s risk.
A condo quickly becomes unaffordable if, after a decade of low owner-occupancy, reserve accounts are depleted. Without funds set aside for major repairs and improvements, condo owners are highly likely to be hit with special assessments for thousands, if not tens of thousands of dollars. Regular monthly assessment fees are certain to increase substantially over the course of a few years.
If a buyer stretches to afford a condo with a low down payment, assessment increases can force the owner into default.
Another risk of low owner-occupancy rates is that of forced termination of the condominium association by developer or investor majority owners – a proposition that often results in owner-occupants taking a financial loss on the unit, leaving them homeless and without sufficient funds to purchase replacement housing.
Clearly there are increased risks to lenders, and if FHA is not able to side-step these new requirements, taxpayers could be on the hook for yet another bailout of the agency in the next recession. The last bailout was $1.7 billion.
But none of that seems to matter to Congress. Both the House and Senate gave HR 3700 unanimous approval. HOTMA was fast-tracked without any debate on the Senate Floor.
How could this happen?
Well, it’s because HOTMA contained a laundry list of housing reforms related to housing, and those provisions garnered widespread support from Affordable Housing advocate groups across the country.
For example, the bill makes it easier for Veterans, people with disabilities, youths exiting foster care, and families with children to find affordable apartments in safer neighborhoods. New policies will require more accountability for maintaining health and safety standards in HUD-subsidized housing, and will make it more difficult for landlords to evict tenants in retaliation for filing complaints with local housing authorities.
Plus there were a host of other long-awaited reforms favored by public housing authorities and non-profit housing groups.
What member of Congress would vote NO on HR 3700, especially in an election year?
You see, it appears that CAI deliberately added its provisions related condo certifications to a housing bill that was already a political sure-thing.
Just read through the following news links below, and you’ll see what I mean. Notice that the primary sponsor of HOTMA, Congressman Luetkmeyer, does not even mention easing condominium certification standards in his news release. And a quick Google search of news releases on the topic paints a clear picture: HOTMA was 99% about Affordable Housing interests and 1% about the Community Association Industry’s interests.
U.S. SENATE SENDS FHA CONDOMINIUM APPROVAL LEGISLATION TO THE PRESIDENT
Dawn Bauman – 7/18/2016
July 15, 2016—In a burst of pre-recess productivity, the U.S. Senate unanimously approved H.R. 3700, the “Housing Opportunity through Modernization Act”. President Obama is expected to sign the bill into law.
The Act makes important changes to the Federal Housing Administration’s (FHA) condominium approval process. Unless a condominium association is certified by FHA, lenders may not offer borrowers FHA-insured mortgages.
“H.R. 3700 becoming federal law is important, but the real test is the pending release of FHA’s updated condominium regulations,” said Dawn M. Bauman, CAI’s Senior Vice President of Government and Public Affairs. “The benefits of H.R. 3700 will be swept away if FHA seeks to undermine community association lien priority statutes in its pending condominium regulation update.”
In May, the FHA moved to severely limit the access of senior citizens to the agency’s popular reverse mortgage program if these seniors live in a state with association lien priority. With 20 states and the District of Columbia having adopted an association lien priority statute, CAI projects more than four million senior citizens living in condominiums will be denied access to FHA-insured reverse mortgages.
Under the Act, FHA is required to make the following changes to the agency’s condominium approval process—
FHA must establish and implement a recertification process that is substantially less burdensome than initial certification
FHA must cease and desist from rejecting condominiums that use transfer fees to fund association operations
FHA must lower the owner occupancy limitation from 50 percent to 35 percent
FHA must provide additional flexibility for condominium projects with commercial space
Note: FHA could very well compensate for CAI’s ploy force the agency to insure potentially risky loans by issuing federal guidelines that will not allow condominium and homeowners’ associations to declare priority lien status with regard to collection of assessments, particularly with regard to Reverse Mortgages.
Major Housing Assistance Reform Bill Passes Congress
The bill makes changes to the project-basing of housing choice vouchers.
By Donna Kimura
Both the Senate and House of Representatives have passed a bill that seeks sweeping reforms to the nation’s rental assistance programs.
The Housing Opportunity Through Modernization Act of 2016 received unanimous support in both houses. The House passed H.R. 3700 on Feb. 2, and the Senate approved the bill July 14, sending the legislation to President Obama for his signature.
“This bill is significant for being the first low-income housing authorizing bill passed since QHWRA (Quality Housing and Work Responsibility Act) in 1998,” says Sunia Zaterman, executive director of the Council of Large Public Housing Authorities. “It includes mostly noncontroversial provisions that have been under consideration for many years with strong bipartisan support focused on simplifying and streamlining existing programs.”
The bill makes several changes to the “project-basing” of housing choice vouchers. An agency would be able to project-base up to 20% of its authorized number of vouchers, plus an additional 10% of its vouchers to assist households in areas where vouchers are difficult to use or to assist people with disabilities, formerly homeless individuals, veterans, or seniors. The maximum term of an initial contract or extension is also increased from 15 to 20 years.
Congressman Luetkemeyer’s statement:
H.R. 3700 includes provisions to:
– Ensure that veterans have fair access to housing and homeless assistance programs.
– Authorize the RHS single family housing guaranteed loan program to delegate approval authority to preferred lenders.
– Extend the period for which a family could use a family unification housing voucher and increase the ceiling for the Family Unification Program voucher age requirement.
– Provides a thoughtful limitation on public housing tenancy for over-income residents.
About HUD/FHA lending, FAQ page about FHA loans for home buyers:
FHA to get $1.7 billion in its first taxpayer-funded bailout
The Federal Housing Administration needs the bailout money to stabilize its long-term finances and cover potential losses on mortgages it insured from 2007-09.
September 28, 2013|By Jim Puzzanghera
1 thought on “New federal bill HOTMA H.R. 3700: Housing Opportunity Through Modernization Act”
FYI, below is the most recent news release by CAI: Obama signs HR 3700. HOTMA is now federal law. I don’t see this as cause for celebration with regard to reducing FHA condo certification standards, particularly allowing certification of condo associations with owner-occupancy rates of 35%.
This is a case of the tail wagging the regulatory dog. When we make it easy for unsuspecting buyers to take on financial risk – in this case, risk a condo owner cannot control – we can cause more harm than good, despite our stated intentions of being helpful.
Will FHA buyers alone significantly improve owner-occupancy ratios in associations with up to 65% tenant occupancy or vacancy rate? Will this misguided policy prevent additional cash purchases by investors? With these ratios, the risk of financial distress, insolvency, and investor takeover of condo associations remains very real.
Forcing FHA to reduce its standards for issuing insurable loans to condo buyers could very well undo a lot of the good, less controversial reforms in HOTMA.
PRESIDENT OBAMA SIGNS LEGISLATION MODERNIZING FHA CONDOMINIUM APPROVALS
Dawn Bauman – 7/29/2016
July 29, 2016 – The White House announced President Barack Obama has signed H.R. 3700, the Housing Opportunity through Modernization Act. H.R. 3700 is now federal law.
H.R. 3700 reforms the process used by the Federal Housing Administration (FHA) to determine if condominium unit owners qualify for a mortgage with FHA insurance. FHA does not originate mortgage loans, but instead insures mortgages against default.
FHA-insured mortgages are widely used by first-time and minority homebuyers to purchase a home. In 2009, FHA changed its condominium qualification rules, leaving the majority of condominium homebuyers ineligible for FHA-insured mortgages. H.R. 3700, which CAI strongly supported, is expected to expand the number of condominiums where borrowers can use an FHA-insured mortgage to purchase a home.
“I congratulate Chairman Blaine Luetkemeyer, Ranking Member Emmanuel Cleaver, and the leadership of the House Financial Services Committee on the thoughtful, constructive, and inclusive process that produced H.R. 3700,” said Thomas M. Skiba, CAI’s Chief Executive Officer. “This bipartisan approach, furthered by Senator Tim Scott and Senator Bob Menendez, allowed H.R. 3700 to pass the Congress without a single dissenting vote.”
The FHA must now begin its implementation of H.R. 3700, which will involve changes to FHA regulations and existing agency guidelines. CAI’s Federal Legislative Action Committee will work with and on behalf of CAI members to urge that FHA move forward in a thoughtful and inclusive manner to fully implement H.R. 3700.
The legislative process is now over and H.R. 3700 is law of the land. Congress has clearly spoken, saying FHA’s current condominium recertification process is too burdensome and existing FHA rules on transfer fees must be changed. It’s time to roll up our sleeves and work in the same collaborative fashion that produced H.R. 3700 to ensure this law is fully implemented.
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