The bill (H.R. 3700) aims at correcting a number of key problems by:
• Ordering the FHA to streamline the entire re-certification process for condo associations and make compliance “substantially less burdensome.” Condo experts predict this alone could convince significant numbers of associations to return to the FHA fold, thereby opening up sales and purchases to thousands more condo units.
• Reducing the minimum owner-occupancy ratio from the current 50 percent to 35 percent, unless FHA can provide justification for a higher percentage. Seth Task, a realty agent with Berkshire Hathaway HomeServices Professional Realty in Solon, Ohio, says the 35 percent ratio will allow “substantial” numbers of developments that can’t quite meet the 50 percent test to get back into the FHA program. In an interview, he cited the case of an elderly condo owner who listed her unit for sale with him recently, but the owner occupancy ratio in her development was 49 percent. Ineligible for buyers using low down payment FHA loans, she tried unsuccessfully to sell and ultimately had to accept an offer $10,000 below what she could have obtained if her building qualified for FHA financing.
• Allowing transfer fees. The legislation directs the FHA to stop rejecting condo communities because they collect small transfer fees when units are sold. The funds collected are used to support association activities — they benefit all residents. FHA will now have to follow the lead of Fannie Mae and Freddie Mac, both of whom consider community-benefit transfer fees acceptable.
• Providing more flexibility on the amount of commercial space permitted in condo developments. Some urban condos are designed for mixed-use — residential and commercial combined — because that’s what makes economic sense in their locations. Under current rules, some of these developments are ineligible because FHA considers their commercial component excessive. The legislation directs the agency to be more flexible and to take the local market context into account.
Will these changes be sufficient to revive FHA’s sagging condo program? “We are cautiously optimistic,” said Dawn Bauman, senior vice president at the Community Associations Institute, which represents nearly 34,000 condo communities and management organizations. Rita Tayenaka, past president of the Orange County (Calif.) Association of Realtors, told me the bill “is a good thing but will not be the end-all” in resolving FHA’s condo woes.
Most analysts agree that the actual effects will depend on two things: how quickly FHA puts its revised procedures into the field, and whether thousands of condo associations who’ve fled the program conclude, “OK they’ve cut the red tape, maybe it’s time to jump back in.”
Kenneth R. Harney of the Washington Post Writers Group is a past member of the Federal Reserve Board’s Consumer Advisory Council and is currently on the board of directors of the National Association of Real Estate Editors. Reach him at KenHarney@earthlink.net.