The Federal Housing Administration (FHA) announced that it would delay the roll-out of the new condominium (condo) purchase loans to November 2, 2009. The rules were originally scheduled to become effective October 1, 2009.

In addition to the delay, the FHA is considering tightening several of their policies, most notably:

  • eliminating “spot approvals” of condo purchase loans.  The entire condo project must now be approved before the FHA will insure a loan on a condo unit;
  • limiting the percentage of condo units in the project which can be mortgaged by an FHA-insured loan to 30%; and
  • requiring at least 50% of the units in the project be sold before the FHA will insure a purchase loan for a unit.

The new rules would, however, decrease the required owner-occupancy of the units from 51% to 50%, allowing speculators and investors, respectively, to flip or rent half the units in a condo project.

first tuesday take: These increasingly stringent standards, if passed, will be a plague on California’s already desperate condo market.  Comparable to the FHA-insured requirements for condo purchase-assist loans, private mortgage insurance (PMI) requirements for California condos bought on conventional financing with less than 20% down place a burden on obtaining that purchase-assist loan.  But condos always take a price beating in any market as they are the last to experience a price incurease during a boom and the first to come down in price during a recession, with both price adjustments more severe (thus, harder to stabilize) than in their single family residence (SFR) counterparts. Speculators love them.

For more information on FHA condo financing, see our recent blog article, “Extra hurdles for condo purchase-assist loans”.

Re: “New FHA condo rules may hinder mortgages” from