Community Associations Institute, the President of Institute of Real Estate Management, National Association of Home Builders, and National Association of REALTORS® jointly wrote a letter to the U.S. Department of Housing and Development suggesting several “enhancements” to the Federal Housing Administration’s condominium requirements.
Several changes to FHA-insured condominium loan guidelines are recommended, including those for pre-sale requirements and investor ownership. The letter also recommended completely eliminating a rule that requires a condominium’s owner/occupancy rate to be at 50% in order for a prospective buyer to receive FHA insurance on a unit, saying it would allow more buyers to purchase units in condominium developments and help stabilize these developments and the community
Additionally, the four groups want to amend or temporarily suspend FHA’s concentration requirement that no more than 50% (30% under the old guidelines) of an association’s units have FHA-backed loans. The letter states that an unintended consequence of this guideline is that first-time buyers often can only afford an FHA-insured mortgage, and if the unit they’re interested in doesn’t qualify, it adversely affects owner/occupancy rates.
“Increasing the concentration limit, or temporarily suspending it, will result in a greater number of owner-occupied units because more borrowers will be able to use FHA in more condominium projects,” the letter reads. “This, in turn, should further reduce losses related to FHA-insured mortgages for condominium units.”
In light of these suggestions, the letter asserts that FHA-insured loans are doing well, citing FHA’s annual Mutual Mortgage Insurance Fund report which showed the economic value of FHA’s single-family insurance program growing by more than $1 billion to $4.7 billion in 2010. It also mentioned a 71% decline in delinquency rates since the previous year for FHA-insured loans originated in 2010.
To further support their position, the letter quotes HUD’s secretary, Shaun Donovan, when he submitted a written testimony for an April 2011 hearing before the U.S. Senate Appropriations Committee, Subcommittee on Transportation, and HUD which read, “FY 2010 is the highest quality FHA book-of-business on record, and FY 2011 may prove to be even better.”
Read the whole letter here.
Written by Alyssa Gerace
