FHA may relax condo rules soon
The Federal Housing Administration may ease restrictions on financing purchases of condominium units.
To protect a struggling emergency insurance fund, the FHA put rules in place barring new loans on developments with more than 15% of the units more than 30 delinquent on condo association dues. Also, at least half of the units must be owner-occupied for projects built longer than a year ago, and one investor can own no more than 10% of the units.
"While we are evaluating potential changes to our condo requirements and expect to announce some of those soon, we cannot yet comment on specific requirements that may be included in any potential changes," a HUD spokesman said in a statement Monday.
One possible change could come on the condo association rule, which has troubled many markets. Coming out of the crisis, these associations began to suffer as foreclosures mounted. Mortgage servicers and the associations often take months to sort out past due allotments before a foreclosure can be completed, allowing the delinquency rate to rise on many developments.
"Community Associations Institute anticipates FHA will modify its standard on assessment delinquencies to allow flexibility for associations. CAI has argued the existing standard that no more than 15 percent of units may be 30 days past due on assessments is too strict. Many condominiums are immediately disqualified from FHA approval by the current standard," the trade group said in a note to its association members.
The Florida market managed to rebound from a low of 38,509 sales in 2008 to 87,581 last year, according to Florida Realtors data.
But much of that activity could be coming from new cash buyers, usually investors, as financing dried up.
The FHA insured 3,630 condo purchases in March, down nearly 15% from last year, according to its monthly report.
"You find that there are a boat load of projects with limited marketability because they exceeded the 15% delinquency threshold, and the only buyers were cash buyers," said Brent Stokes, senior vice president of Sperlonga Data & Analytics. "What we further found was that the purchase price truly suffered, because the cash buyer realizes he has leverage."