FHA may cut off many condos from loans


WASHINGTON – Is a little-publicized switch in federal mortgage policy causing huge problems for condominium sellers, buyers and homeowner association boards across the country – even depressing prices and blocking refinancings?

“Yes,” says condo industry leaders, from the 30,000-member Community Associations Institute to individual unit owners and realty agents.

They say rule revisions by the Federal Housing Administration have caused thousands of condo projects to become ineligible for FHA mortgages. This, in turn, has abruptly shut off loan money for would-be condo buyers and refinancers, forcing them to pursue conventional bank loans requiring much higher down payments – sometimes 20 percent and higher, versus the FHA’s 3.5 percent minimum.

For its part, the FHA says the rule changes it has adopted, which focus on project budgets, insurance and financial reserves, are designed to avert losses from delinquencies and foreclosures.

But the agency confirms that thousands of condo projects have failed to obtain or apply for required recertifications under the new rules. Out of approximately 25,000 condo projects nationwide with expiration dates for FHA eligibility between last December and Sept. 30 of this year, only 2,100 – just 8.4 percent – have been approved or recertified by the agency, according to Lemar Wooley, an agency spokesman.

Critics say that FHA did not consult adequately with the condo industry before changing its rules – a charge FHA denies – and contend that the agency did not think through some of its policies. Andrew Fortin, government affairs director of the Community Associations Institute, says one rule – that no more than 15 percent of the unit owners in a project be 30 days or more delinquent on their association dues – is often impossible for volunteer boards of directors in large projects to keep track of, much less to certify to FHA.

Even worse, according to other critics, the new rules put board members into legal jeopardy by requiring them to sign certifications attesting that the condo documents comply with all local statutes and that they have no knowledge of situations that could cause any unit owner to become delinquent at some later date. The mandatory certification carries a maximum penalty of $1 million in fines and 30 years imprisonment if found to be incorrect. Large numbers of condo boards have balked at this requirement, critics say, leading to the drastic drop in certification requests and condo eligibility.

Bottom line for unit owners, sellers and buyers: If an FHA loan figures in your plans, first check with the association board. If the project isn’t certified, you are cut off – at least for now – from some of the most favorable mortgage terms in the marketplace.

Kenneth Harney

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