Congressional Democrats and Republicans haven’t agreed on much lately, but they’re together on one issue that affects condominium buyers and sellers across the country: The Federal Housing Administration has bungled its condo finance program.
In a rare moment of bipartisanship before heading home for the summer, the Senate unanimously passed legislation that will require the FHA to lighten up on its condo financing regulations and make low down payment FHA loans more available to the people they are supposed to serve — moderate-income buyers, many of them minorities and first-time purchasers, who turn to condominiums as their most affordable option. The vote in the Senate followed a 427-0 vote in the House earlier this session.
Passage of the legislation came after several years of complaints by housing, community association and other groups about FHA’s overly strict requirements. Critics pointed out that FHA once was the go-to source of condo financing for first-time buyers, but since 2010 its role has shrunk drastically. FHA helped finance 80,000 to 90,000 condo mortgages a year during the previous decade and a half, but more recently production has dwindled to barely a quarter of that volume. FHA condo lending in the first three months of this year plunged by 8.6 percent from the previous quarter, according to Inside Mortgage Finance, a trade publication. In the final quarter of last year, volume declined by 20.3 percent from the third quarter.
The agency’s restrictions on condo community eligibility for financing became so onerous — requiring complicated re-certifications of entire developments every two years — that thousands of condo associations abandoned the program. According to the Community Associations Institute, fewer than 14,000 of the 152,000 condo associations in the U.S. are now eligible for FHA loans. Individual units are not eligible for FHA financing unless the entire association’s finances, reserves, insurance, budget and other items have been approved by the government.
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.