While the Federal Housing Administration (FHA) has loosened its condominium approval requirements in recent years, many properties continue to struggle to meet overly stringent criteria, and the majority of properties are being denied, according to a panel at the ‘How Do FHA Condominium Rules Impact Your Business?’ forum at the 2013 Realtors Conference and Expo.
According to the National Association of Realtors (NAR), condominiums are often the most affordable homeownership option for first-time buyers, small families, single people and older Americans – especially when purchased with low down payment, FHA-backed condo mortgages, which are among the strongest performing loans in the FHA portfolio, says NAR.
However, FHA data show approximately 60% of condo projects seeking approval in 2013 were denied; however, this is up from 2011, when 20% of projects were denied, reports NAR.
Joanne Kuczma, housing program officer in the Office of Single Family Program Development at the U.S. Department of Housing and Urban Development (HUD), cites the top reasons FHA projects are denied approval: financial instability, pending litigation, insufficient insurance coverage, and outdated or missing documentation – among others.
"The goal isn't to reduce FHA's footprint in the condo market but to ensure that homeowners are buying into a viable, sustainable homeownership opportunity," explains Kuczma. She says HUD is working hard to improve the approval process and is considering changes, such as reinstating spot approvals for individual condo units in projects that aren't already FHA-approved, according to NAR.
Dawn Bauman, senior vice president for government affairs at Community Associations Institute, says condo communities have grown tremendously in recent decades, from about 70,000 housing units in 1973 to nearly 26 million units today. Her advice for buyers and agents seeking to buy in those communities is to work closely with the seller.
NAR says it has advocated reforms to ease FHA's burdensome condo-financing rules to give consumers access to a wider choice of condo developments and to increase affordable financing options available to purchase within those developments.
Those reforms, according to NAR, include extending FHA's re-certification process from two to five years. To avoid a lapse, many condo projects begin the re-certification process at least six months prior to the deadline, so many of them end up going through the re-certification process every 18 months, explains NAR.
Another NAR recommendation is to simplify the re-certification process, which requires the same amount of paperwork as the initial project approval. NAR believes employing an electronic filing system, similar to what FHA uses for its multifamily loan programs, would increase efficiency, improve data accuracy and help reduce costs.
NAR says it also encourages HUD to align the condo-approval standards across the housing finance system and create consistent condo-approval guidelines for Fannie Mae, Freddie Mac, Department of Agriculture, Department of Veterans Affairs and other agencies that are involved in housing finance.Â Â Â
"Realtors believe that making these changes to FHA's condo rules will help protect the long-term value of homeownership in the country and ensure the housing recovery stays on track," says Gary Thomas, president of NAR and broker-owner of Evergreen Realty, in Villa Park, Calif.