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New FHA Proposal Could Help Facilitate Condo Sales

July 31, 2013  |  by Ellen

Condos have been caught in the middle for the past two years due to regulations from FHA loans that conflict with the existing rules and regulations of most condo boards. But Inman News reports that the quagmire may ease up soon since the announcement last week by FHA that they’ve come up with a ‘workaround’. One of the main points of contention was the common regulation that properties in foreclosure could be rented out by the mortgage investor on a short term, almost hotel-like, basis. Such a rule was rarely enforced and has been on the books for decades, but the FHA had initially required it be erased in order to stay within the rules. Condo associations would have to rack up sizeable legal fees to make that happen, which forced them to choose between maintaining eligibility for FHA loans on their units or going through the legal hoops to amend the regulations. But now the FHA will allow condo boards to bypass that if they and unit buyers give written statements that they, “will not rent the … unit for less than 30 days and/or provide any services normally associated with a hotel…”

Given how many condo properties are within the MRIS boundaries this will make an impact on the local market, hopefully for the better. 

Have you had clients impacted by these FHA rules? Do you see this workaround as an improvement? Please let us know in the comments. 

Posted in Blog, Industry News

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15 responses to “New FHA Proposal Could Help Facilitate Condo Sales”

  1. Gary says:

    I was not aware of that rule until I read this posting. I believe the issue we as agents are facing, is the percentage of owners vs. renters and the deliquency rate FHA lenders use to determine if they will fund the sale.

  2. kentuckymortgage says:

    Condos in my market are just not moving

  3. Cheryl M. says:

    I agree with Gary. In reading the article I was hoping the change would impact the delinquency rate. I too was unaware of the issue in the article. There are many nice condos that are unable to be purchased by qualified buyers who have the means to pay the monthly condo fee. Yet those properties are being bypassed by many of my clients because they can not get FHA Financing due to the condo delinquency rate being over 14%. If this rule is changed, THEN you will see a positive shift in condo purchases, particularly in Prince George's County Maryland.

  4. Jennifer says:

    Not the change I was hoping to see. I wasn’t aware of this regulation or seen it impact anyone personally. Things like removing the “no FHA loan with a leased water heater”, the lifetime PMI, FHA buyers ONLY being able to buy a FHA-approved complex (I know there are reasons “why”, it’s just so limiting!). My lenders and I have been referring our buyers more into MassHousing loans than FHA wherever possible because of the the expensive loans FHA have become

  5. Judy says:

    There are two problems affecting our ability to obtain FHA financing. Because of the delinquency problem the association lost it's FHA certification. The only units that sold went to investors throwing the association into a second qualifier, the percentage of owner occupied units. Both qualifiers will have to change to let many condo associations regain certification.

  6. Doc Ray says:

    If condo fees where included in mortgage payments it would cut down delinquencies.

  7. ftruseljr says:

    Based on the previous comments, this workaround is not something most Realtors are concern with, our concern is primarily centered around getting FHA loans for our qualified buyer in condo developments with high delinquency rates. The above article didn’t address that issue.

    I wasn’t aware of the issues reported on in this article. My hope is that the FHA, would use their vast resources to help us move these condos. These mostly vacant condos sitting on the market, are driving down the market values because the FHA, will not reduce their stranglehold on the condo market.

  8. I see the common theme is the delinquency rate. I have a sale currently who is getting close to closing only to find out the delinquency rate is 50%. If the rule changed and they were able to sell these homes to folks who have the means to pay, the delinquency rate would go down. This rule is not working in favor of our current market and are putting undue strain on the homeowners who are current and who want to sell.

  9. FrankP says:

    First of all, the board of directors of the condo can make changes to the bylaws in short order and I don't believe they should need a vote other than the board if it affects marketing or conforming to the agencies such as FHA, Fannie Mae, Freddie Mac, and VA. Secondly I agree about the issue regarding investor concentration needs to be higher than 50% to allow developers to unload inventory. It use to be that FHA had no PMI on condos and thus people used FHA as first choice or a tleast lower it for low to moderate income borrowers to make it more affordable. After all the intent was to put people in homes not make it harder

  10. Amy Fisher says:

    Maybe in Florida, or other vacation destinations, this change will be helpful but it will has an insignificant effect on the DC Metro market. Perhaps the owner/investor ratio solution might be to change the owner ratios for a limited period (say 3 years?) after which it could revert to 50% giving the condo market an opportunity to improve. But even that would barely touch the problem. If the FED seriously wanted to stabilize the condo market using FHA, the loan guidelines would need to accept higher delinquency ratios, ease other restrictions, reduce application fees, expedite project approvals, and/or reinstate spot approvals ,AND, dial back the usurious FHA mortgage insurance premiums. My hats off to FHA for saving the market from annihilation in 2007-2011, but once again, as for much of the quarter century from the early 1980's through 2007, FHA has formulating one impediment after the next in an effort to become an obscure and all but irrelevant form of financing.

  11. Amy Fisher says:

    ooops – "will have" and insignificant…. not "will has". Site needs an edit button

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