FHA May Soften Condo Rules

By Liz Clinger Updated on 5/22/2012

Currently, the FHA has in place rules to block new loans on condo developments with any more than 15% of its units more than 30 days past due on condo association dues, and with a minimum of half the condo units owner-occupied on any development less than a year old. The FHA also rules that only 10% of the units can be owned by any one investor.
Monday, a HUD spokesperson stated that they were considering changes to the condo requirements, and to expect an announcement soon, though what the potential changes are were not mentioned in the statement.

Speculation on the changes bring forethought to the condo association rule, which caused associations to suffer while foreclosures increased. Delinquency rates rise significantly on developments because of the time it takes for mortgage servicers and associations to sort delinquencies is usually months before a foreclosure can be completed.

The CAI indicated in a note to its association members an anticipation that the “FHA will modify its standard assessment delinquencies to allow flexibility for associations.” The Community Association Institute also indicated that the current guidelines are too strict, causing many condominiums to be immediately disqualified from FHA approval.

Some markets have found a rebound, though it’s speculated that much of the activity is from investors as new cash buyers, while financing was going nowhere. The FHA has insured 15% less condo purchases in March than the same month last year, only covering 3,650 condominium purchases.

Sperlonga Data & Analytics senior vice president, Brent Strokes indicated that there are many projects with low marketability because of the current delinquency standards of 15%, making cash buyers drive purchase prices down because of the leverage they realized.

Lender411.com has information on FHA Mortgage Loan Requirements.