Reblogged from Scotsman Guide – Victor Whitman
The Federal Housing Administration hasn’t gone far enough in relaxing its rules on borrowers seeking an FHA loan for a condominium, according to the National Association of Realtors (NAR).
In a letter this week to FHA’s overseer, the U.S. Department of Housing and Urban Development (HUD), the trade group took issue with a policy that requires a condo complex to meet a minimum owner-occupancy threshold to be eligible for FHA lending. NAR also asked the agency to do away with a rule that limits the concentration of FHA loans to half the units in a complex.
NAR said that FHA should impose no fixed owner-occupancy levels, but consider every project on a case-by-case basis. The trade group also said that the agency should allow a concentration of FHA loans of up to 100 percent of the units in a complex.
“FHA is often the only financing available for many buyers, especially first-time or middle-income homebuyers who have limited resources for a downpayment,” the letter said. The trade group cited FHA data that suggest condo loans have been performing better than the average single-family loan and so shouldn’t be considered riskier than single-family loans. The serious-delinquency rate for FHA loans was 4.95 percent in August, whereas an FHA condo loan had a delinquency rate of 4.39 percent, NAR said.
With the passage of the Housing Opportunity Through Modernization Act of 2016 this past July, FHA has been under the gun to relax its rules on condo loans. Generally speaking, the agency has been directed to make its requirements similar to those of the government-sponsored enterprises, Fannie Mae and Freddie Mac. NAR’s letter to HUD was sent in advance of this week’s deadline for submitting comments on the rule-making for the law.
FHA tightened the rules in 2009 in response to the financial crisis, which threatened to bankrupt the insurance fund. FHA loan counts for condos plummeted from over 80,000 in 2001 to around 21,000 in 2015 and a projected 26,000 in 2016, according to NAR.
HUD has announced several changes aimed at increasing the number of FHA-insured condo loans, including its intention to allow FHA to grant spot approval to individual units in condominium complexes that haven’t been certified. Under HUD’s direction, FHA also plans to streamline its certification process. Condo associations will no longer, for example, have to start the application process virtually from scratch. A complex also will now have to be recertified every three years, instead of the current two years.
In October, FHA also announced it was lowering the minimum condo-complex owner-occupancy ratio to 35 percent from 50 percent, if certain other conditions are met.
In its letter to HUD, the Mortgage Bankers Association said FHA should maintain a minimum owner-occupancy range of 25 to 50 percent in most cases, but potentially allow for some exceptions for a lower minimum owner occupancy.
MBA said the agency should maintain its current concentration that limits FHA lending to 50 percent of the units. Notably, the trade group also expressed concerns that FHA will again allow spot approvals. MBA said the agency should collect more data on that.
“MBA is concerned that FHA’s efforts to reintroduce parameters for single-unit approvals do not have enough systemic safeguards in place to ensure that these approvals are limited to already existing projects and to minimize misuse of this program,” the trade group said.
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