Saturday, July 23, 2011

Is FHA Getting Out of the Condo Business?

New FHA guidelines will make it much more difficult for condominium associations to be certified for FHA financing. Without the certification, owners of condominiums will be unable to sell to buyers using FHA financing.

Prior to 2010, once a condo project was FHA-certified, the certification was good forever. Now any project that was certified prior to 2008 must apply for certification under the new, stricter rules, and must re-apply ever two years.

Until February 2010, a lender could get a "spot certification" of one unit in a non-FHA-certified project so a borrower could use an FHA loan to buy a condo. Not anymore.

According to this article in Inman News, the condo association must ensure that no more than 50% of the units can be occupied by renters. How is the condo association supposed to know this? Knock on every one's door every month, and ask who is living there?

Additionally, no more than 15% of the condo owners can be over 30 days late on their assessments. Obviously, the delinquency rate of the owners is always in flux, and it is particularly high when many of the units have been foreclosed and are owned by banks.

The biggest barrier to getting FHA certification is that the condo manager or board member filing the application is personally responsible for the accuracy of the application. The penalty for an inaccurate application is up to $1,000,000 and 30 years in prison! Who wants to take that kind of risk, when it's impossible to know that the information is accurate?

What does this mean for Tucson? If you check this list of FHA-certified condos in Tucson, only four projects have been certified since 2008. They are: Sunset Foothills Condominiums, The Villas at Hacienda del Sol, Pinnacle Canyon Condominiums, and Tierra Catalina Condominiums. All are north of River Road, in the foothills. Condo owners in these projects are probably not relying on FHA financing to get their condos sold.

The rest of the condos? Not certified. Not eligible for FHA financing. Without the FHA options, buyers will need a larger down payment and higher credit score. This reduces the pool of buyers. Few eligible buyers means lower sale prices for condos.