By Deborah Goonan, Independent American Communities
Very interesting development!
Not long ago, I wrote about Housing Opportunity Through Modernization Act (HOTMA), and what the policy might mean for the condominium industry and consumers alike.
If you missed it, you can read about HOTMA here:
Well, it appears that the U.S. Department of Housing and Urban Development (HUD) is less than enthused about insuring FHA mortgages for condos in associations with less than 50% owner-occupancy rates.
HOTMA mandated that the Federal Housing Administration take steps to reduce obstacles to certification of condominiums, so that more of them might qualify for FHA loans. The legislation called for reducing owner-occupancy requirements to 35%, but left the door open for FHA to offer justification for requiring a higher owner-occupancy rate.
So, FHA will now approve certification for condominium loans where Associations have less than 50% owner-occupancy under certain conditions:
C. Conditions to Lower Owner Occupancy Percentage for Existing to as low as 35 percent
Existing projects (greater than 12 months old) with an owner occupancy percentage of at least 35 percent and less than 50 percent are eligible for approval under the following circumstances and subject to the following conditions:
- Applications must be submitted for processing and review under the HUD Review and Approval Process (HRAP) option.
- Financial documents (see Section 2.1.6) must provide for funding of replacement reserves for capital expenditures and deferred maintenance in an account representing at least 20 percent of the budget; and
- No more than 10 percent of the total units can be in arrears (more than 60 days past due) on their condominium association fee payments (as defined in Section 2.1.5 of the Guide; and
- Three years of acceptable financial documents (see Section 2.1.6) must be provided.
The owner-occupancy percentage must be documented as follows:
- Copies of sales agreements and evidence (loan commitment) that a mortgagee is willing to make the loan; or
- Evidence that units have closed and are occupied by the owner; or
- Information from a developer/builder that lists all of the units already sold, under contract, or closed that are or will be occupied by the owner (e.g. a spreadsheet, chart, or listing used for the company’s own tracking purposes) that is accompanied by a signed certification from the developer.
The National Association of Realtors is reportedly pleased with the outcome.
But the Association Governed Housing industry is already complaining that, under the new FHA conditions, precious few condominiums will qualify for financing at the lower owner-occupancy rate.
Perhaps that’s the point! The HOA industry, led by Community Associations Institute (CAI) tried to regulate the regulatory agency, and FHA pushed back, mindful of protecting condo buying consumers and American taxpayers that don’t want to be on the hook for another massive bailout of Fannie and Freddie in the next real estate melt down.
For those of us concerned about exposing condo buyers to risky investments in unstable condominium associations, this new rule is a breath of fresh air. Common sense has prevailed.
Here’s a recent news release lamenting the new FHA rules.
FHA pulls housing head fake on condo communities
Kenneth R. Harney (November 1, 2016) Chicago Tribune
Call it a housing policy head fake — one with potentially painful consequences for moderate-income buyers, sellers and seniors in hundreds of condominium projects around the country. If you were thinking about purchasing a condo unit with a low-down-payment Federal Housing Administration mortgage in the coming year, this could affect you.
Last week, ostensibly yielding to a congressional mandate to make consumer-friendly FHA mortgages more widely available in condominiums, the government announced a move to do precisely that: Starting immediately, projects with fewer than half of their units occupied by owners may be eligible for certification for FHA financing. Under “certain circumstances,” the government said, projects with as low as 35 percent owner occupancy might now be eligible.
Preview, read more: