Business forum: New FHA lending guidelines hinder condos
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In February, the Federal Housing Administration passed a set of lending guidelines that removed the long-standing "spot approval" process for FHA-insured condominium loans and enacted stringent new requirements for projects to be approved on a property-wide basis.
While these guidelines purport to make the loan-approval process simpler, they will dramatically reduce the market for the glut of unsold and abandoned condominium units. And, while the new rules attempt to shield the FHA from the vagaries of the real estate crash, they are likely to have the opposite effect, restricting the overall U.S. recovery and preventing the FHA from building a stable inventory.
Before Feb. 1, buyers looking for approval of an FHA-insured condominium loan could file paperwork for each unit individually, with a determination of suitability made on a per-unit basis. The new guidelines require pre-approval of the entire building, ultimately removing the spot-approval process.
The FHA has issued new rules that will determine whether a condominium project can be approved, and unless the property passes muster, FHA-approved loans won't be available to buyers.
These regulations cast a wide net. It is currently estimated that the Federal Housing Administration insures more than 20 percent of all loans.
Unfortunately, the authors of the new guidelines appear to be out of touch with the current realities in the marketplace.
1) Maintain a reserve equal to 10 percent of the annual budget: Even completely healthy condominium properties often fail to maintain a reserve of this size, and in many states condominium owners may choose to waive collection of reserves entirely.
First Published June 12, 2010 12:00 am
