Condominium (condo) sales just got easier to finance.
Effective September 13, 2012, the Federal Housing Administration (FHA) relaxed some of their requirements for insuring condo purchase-assist financing and refinances.
Under the new requirements:
- the maximum amount of floor space within the common interest development (CID) allowed for nonresidential use was expanded from 25% to 35%; and
- the maximum percentage of units which may be owned by a single investor was increased from 10% to 50% of the units, as long as the remaining 50% are owner-occupied.
The FHA also increased the number of days 15% of the condo community may be delinquent on homeowners’ association (HOA) dues to 60 days (up from 30 days) and still allow buyers to qualify for an FHA-insured loan.
Condo owners in many CIDs have been unable to sell to traditional buyers who are unable to save up a sufficient downpayment. To purchase, buyers need the support of FHA-insured financing, which will now be available.
These new requirements expire August 31, 2014.
first tuesday Insight
Once again, the FHA is sacrificing prudent lending standards in the name of economic stimulus. A little extra flexibility is fine, if the buyers who benefit from this are of the owner-occupant variety. But these new guidelines include something insidious benefiting Wall Street-type syndicators more than anyone else.
These new guidelines greatly enlarge one thing: speculator intrusion. Allowing one individual/entity to own half the properties in an HOA subjects the entire project to financial collapse. Should that single speculator (or speculator collective) become insolvent, or simply choose to default on HOA payments to conserve cash until a resale, the whole project is taken down. The other owners in the CID don’t have a chance to combat the possible heft of these speculators who own 50% of the CID.
FHA-insured loans for condos were never unreasonably difficult to obtain. Sure, financing a condo just got easier. But the risk to lenders and HOAs just got higher. Speculators can now invade and flip without concern since price-pushing FHA-insured loans are now available to all – under-qualified buyers included.
Re: “Mortgagee Letter 2012-18” from the Federal Housing Administration