FHA Discussing Loosening Regulations to Approve More Condos :: Good news for us here in Santa Clarita!
The regulations placed on condo complexes by the FHA to be able to be approved for their backed loans has adversely affected the condo market. This is very evident here in Santa Clarita where there are very few condo complexes on the short approved list. The rules that have left so many complexes ineligible are now being openly discussed by the FHA to help drive the market.
These rules have helped depress and drive down condo prices, because it has made condo purchases for first-time homebuyers more difficult and condos are typically the price point for first time buyers. Because there are less buyers, the inventory wasn’t moving and prices decreased. Ironically this really just helped the people the rules were put in place to dissuade from purchasing condos….investors.
Prices were driven down and made purchasing them as investments more lucrative and then made getting FHA approval more difficult as per FHA guidelines a complex couldn’t get approval if it was more than 50% investor occupied.
This is wonderful news for us here in Santa Clarita as so many first time buyers would have more inventory opened up to them, not to mention it should get prices coming up on condos for those sellers thinking about selling their condo.
FHA officials defend their requirements as prudent and necessary to avoid insurance fund losses but have expressed a willingness to reconsider some of the issues that have upset condo owners and the real estate industry. Among the biggest areas of criticism of the FHA’s rules are its limitations on:
•Non-owner occupancy. The agency requires that no more than 50% of the units in a project or building be non-owner-occupied. This rule alone has made large numbers of condominiums in hard-hit markets ineligible for FHA financing, where investors have purchased units for cash to turn into rentals.
•Delinquent condo association fee payments. The FHA refuses to approve a project where more than 15% of the units are 30 days or more behind on payments of condo fees to the association. Given the state of the economy, this has been a problem for thousands of associations, even in relatively prosperous markets. Steve Stamets, a loan officer with Apex Home Loans in Rockville, Md., said some sellers and buyers have been so frustrated by the rule that they have offered to pay the amount of delinquent fees needed to bring the overall project into compliance “just to get the deal done. This is a ridiculous situation,” Stamets said. “When somebody calls up now and says they want to buy a condo with an FHA loan, I cringe.”
•Nonresidential space usage. The FHA has set a cap of 25% of the total floor space in a project for commercial use. Critics say this is too low and unrealistic for condo projects in urban areas, where retail and office revenues can be important to overall financial feasibility.
The agency has imposed a long list of other requirements on insurance and reserves, plus a highly controversial rule that associations interpret as creating harsh legal liabilities for condo board officers if applications for FHA approvals contain inaccuracies. Andrew Fortin, vice president for government and public affairs at Dallas-based Associa, one of the country’s largest homeowner association management firms, said many boards, facing the prospect of severe penalties, have refused to apply solely because of this personal liability burden.
The FHA is expected to clarify the personal liability language and make other modifications in its forthcoming rules. Whether the changes will be enough to persuade homeowner boards to apply for approvals in large numbers is uncertain, but industry experts say they — and residential unit owners — are likely to welcome whatever loosening of the current restrictions FHA can offer.
From LA Times
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