IMPORTANT UPDATE: 11/16/09: FHA Issues Final Revised Condominium Lending Guidelines
The FHA has announced that it will again delay the implementation of the new regulations governing condominium mortgages until December 7th, 2009. The new regulations were initially proposed in June and would change the approval process and the criteria used to determine if a buyer can obtain a FHA mortgage on a condominium. The proposal would replace the current spot approval process with a new comprehensive approval process under which approvals would be good for two years.
On October 21st, FHA stated in an email:
Implementation of FHA’s new policy guidance for condominium project approval and condo unit financing will be delayed until December 7th 2009. The new guidance, to be issued within the next two weeks, will: 1) offer additional leniencies to address the difficult market conditions and 2) augment some portions of FHA Mortgagee Letter 2009-19, providing additional information and clarification.
Until the new guidance takes effect on December 7th, 2009 lenders may continue to use the Spot Loan Approval guidance issued in Mortgagee Letter 1996-41. Further, the site condo and manufactured housing condo project changes that have already been implemented are not affected by this delay.
See my prior post for a comprehensive review of the changes.
There has been a frenzied lobbying effort by condominium groups led by the Community Associations Institute and lenders to suggest ways to improve the proposed regulations in a manner that would both mitigate FHA exposure to bad mortgage debt and set realistic benchmarks for condominium associations to qualify for project approval under FHA financing mechanisms. The FHA’s delay may be attributed to sorting through all the concerns about the new, stricter guidelines.
IMPORTANT UPDATE: 11/16/09: FHA Issues Final Revised Condominium Lending Guidelines
As a follow up to my post on the new FHA condominium regulations, I received word from my friend Seth Wills at XLT Property Management, that the Community Associations Institute — the leading condominium and homeowner’s association trade group — recently sent a bulletin to its members, railing against the new FHA and Fannie Mae regulations as overly onerous and hurtful to the real estate market. CAI’s memo states:
CAI believes the new regulations would be a serious burden for condominium associations, and lead to market confusion that could hinder the housing and economic recovery. Under the proposed regulations, all condominiums previously approved for FHA financing would have to be reapproved or FHA financing would not be available. Also, instead of FHA staff reviewing and underwriting condominium projects, FHA would follow Fannie Mae and Freddie Mac by allowing lenders to review and underwrite these projects and certify compliance to FHA. This is the same system that resulted in the current mortgage default crisis. Furthermore, condominium boards (and management) would be asked to provide legal documents, contracts, plans, insurance coverage, pre-sale and owner occupancy percentages and other documentation to lenders performing the underwriting reviews. Condominium associations would also be required to compile, maintain and provide the necessary documentation and information requiring them to develop and implement new procedures — adding significantly to the workload of community managers and condominium boards.
CAI’s position is not surprising given the spat of recent, increased government intervention and regulation affecting condominium and HOA governance. CAI makes a good point with respect to the agencies’ failure to coordinate their regulatory policies:
CAI believes it is essential that these agencies coordinate their actions. These agencies are all essential to mortgage financing and the housing market. Different requirements create confusion for lenders, borrowers, associations and the general public. Such confusion can only slow the recovery of the housing market and the economy in general.
The FHA regulations are set to go into effect November 2. We’ll see if CAI’s promised lobbying push this next month has any effect.
