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FHA Changes Guidelines for Condo Financing – New Lifeline for Home Buyers

September 4, 2013 by · Leave a Comment 

From The Wall St. Journal – Nick Timiraos

The Obama administration wants to create a mortgage market that is more forgiving to borrowers who lost their homes due to the recession, an effort that could widen the pool of potential homeowners.

A recent rule change lets certain borrowers who have gone through a foreclosure, bankruptcy or other adverse event—but who have repaired their credit—become eligible to receive a new mortgage backed by the Federal Housing Administration after waiting as little as one year. Previously, they had to wait at least three years before they could qualify for a new government-backed loan.

To be eligible for the new FHA loans, borrowers must show that their foreclosure or bankruptcy was caused by a job loss or reduction in income that was beyond their control. Borrowers also must prove their incomes have had a “full recovery” and complete housing counseling before getting a new mortgage.

The Obama administration wants to create a mortgage market that is more forgiving to borrowers who lost their homes due to the recession — an effort that could widen the pool of potential homeowners.

Real-estate companies in bubble hot spots like Las Vegas and Phoenix already have stepped up marketing campaigns to attract these so-called “boomerang” buyers whose finances have improved after a foreclosure.

But it isn’t clear if banks will be eager to offer loans with the new terms at a time when they are facing a wave of lawsuits and investigations related to other government-backed loans. The FHA already offers among the most flexible lending standards today, requiring down payments of just 3.5%.

“It’s difficult to see how lenders would even consider doing mortgages with higher risk” in the current environment, said David Stevens, the chief executive of the Mortgage Bankers Association, who served as the FHA’s commissioner from 2009 to 2011. Lenders aren’t going to expand credit “while you’re suing them and threatening them over minor errors.”

The policy change reflects broader concerns among administration officials and federal regulators that the mortgage-credit pendulum has swung too far to the restrictive side from the days of lax lending rules that fueled the bubble. Some economists say too-strict credit standards are shutting out some creditworthy borrowers and holding back economic growth. Low participation in the recovery by young buyers “absolutely is a problem, and I’m not exactly an ‘easy credit’ guy,” said Thomas Lawler, a housing economist in Leesburg, Va.

The new rules, which expire in three years, also apply to former homeowners who completed a short sale, where a bank approves the sale for less than the amount owed.

That could help potential buyers like Candy Alvarado, who sold a condominium in Norwalk, Calif., for $108,000 three years ago, leaving her bank with a $168,000 loss. The 31-year-old schoolteacher, who used a no-money-down mortgage, said it didn’t make sense to keep the condo after home values dropped and her work hours were cut during the recession.

Ms. Alvarado and her husband began looking for a home for around $400,000 in April and they are preapproved for an FHA-backed loan. “We’ve been saving, and we want to make sure we have a home where we can build equity,” she said.

Shaun Donovan, the secretary for the Department of Housing and Urban Development, which runs the FHA, played down potential criticism that the agency might invite a return to risky lending practices. “What we are talking about is getting back to responsible, plain-vanilla lending,” he said in an interview. “We believe these are low-risk loans that can be made safely.”

In the four years ended last September, some 3.9 million homes had been lost to foreclosure. About 1 million borrowers who went through foreclosure during the crisis have already waited the required three years to be eligible for an FHA-backed mortgage, and by early next year that number could rise to 1.5 million, according to estimates from Moody’s Analytics.

While the new rules could help some buyers, many former homeowners will need more time to repair their credit, said Aviva Lomeli, a real-estate agent with Redfin who represents Ms. Alvarado. “You don’t necessarily start recovering one day after you finish a short sale,” she said.

The administration’s broader push to ease lending is running up against other hurdles. The government—through mortgage-finance firms Fannie Mae, Freddie Mac or federal agencies—has guaranteed as many as nine in 10 new loans in recent years. But over the past four years, banks have had to buy back tens of billions of defaulted loans as Fannie, Freddie and the FHA faced mounting losses. Because of uncertainties about these “put-backs,” lenders have imposed more-conservative standards than what the federal entities require.

The FHA says it has a separate effort under way to provide greater clarity about when banks could face put-backs, following on the work of the regulator for Fannie and Freddie last year. Lenders say those changes haven’t been specific enough to change their lending posture.

In speeches this year, officials at the Federal Reserve have raised concerns that tight lending standards could make it harder for younger borrowers, who tend to have lower credit scores, to obtain mortgages. The Fed’s quarterly surveys of senior loan officers have found that while banks have indicated a growing willingness to extend credit to borrowers with high credit scores, about 30% of lenders in April reported that they were less likely than a year earlier to extend FHA-backed loans to borrowers with lower credit scores.

Still, not all lenders believe tight credit is the problem. Logan Mohtashami, a mortgage broker in Irvine, Calif., argues that weak income growth is a bigger problem. “Getting a loan done is a lot more work, but if you have the financial goods, you get the loan,” he said.

But Mr. Mohtashami said he isn’t concerned that the FHA rule changes invites a return to bubble-era excesses. “This can’t be compared to subprime. The problem back then was that nobody was verifying anything,” he said. “This still requires people to qualify for the loan, verify the job, verify the assets.”

Updates to FHA Condo Cert Guidelines

September 19, 2012 by · Leave a Comment 

The Federal Housing Administration has agreed to soften the requirements for condo communities to receive certification for federally-insured mortgages.  The policy update is a boon for both Phoenix condo buyers and condo sellers.

Buyers will benefit from easier access to mortgage money, while sellers will benefit from a larger potential pool of buyers.  It’s worth noting, however, that the certification process is still rigorous and no doubt many property management companies will not take advantage of the opportunity.

The FHA also took measures to limit the liability of condo associations resulting from application requirements, which previously provided for huge fines and even the potential for prison time.

Read the details here.

FHA changes condo certification rules

September 19, 2012 by · Leave a Comment 

Investor ownership limit upped, legal liabilities for HOA boards reduced

The Federal Housing Administration has finally done what it promised back in May: published revised rules that could convince condo associations across the country to get certified or re-certified for financing, thereby opening individual unit owners and sellers to low down payment, FHA-insured mortgages once again.

For condo boards, real estate agents and property managers, the long-awaited rule changes announced yesterday should prove to be “excellent news,” that will “help spark home sales and help tens of thousands of condominium associations recover from the housing slump,” according to the Community Associations Institute, the largest U.S. trade group in the field.

Among other changes, the rules eliminate some of the legal liability headaches that caused many condo boards to balk at FHA certifications; raise the permissible investor-ownership limit; and increase the percentage of non-residential, commercial use allowed in an FHA-certified project.

To Christopher Gardner, managing member of FHAProsLLC, a Los Angeles-based firm that assists condo boards with their applications for FHA certifications, the changes “aren’t a home run but maybe a double,” but should still significantly reduce the impediments associations encountered in seeking FHA approvals.

 Under federal rules, individual units in condo projects are not eligible for financing unless the entire project has passed FHA’s certification process, which looks at project budgets, reserves, forthcoming capital improvement needs, insurance policies, delinquent payments of association dues, composition of renters versus owner-occupants, and various other factors.Industry experts welcomed the revisions to the certification form itself, which previously intimidated condo association officers because it appeared to ask them to accept broad legal liability on matters they couldn’t totally be certain about, such as disputes among tenants in the building, litigation filed with courts involving the condo project or board, compliance with local and state regulations and the like.

Though FHA attempted to reassure them that it would be rare that the government would seek the maximum penalties in cases of misinformation in applications for certification, those penalties nonetheless were daunting: up to $1 million in fines and 30 years in prison.

Now the certification form asks a single signer representing the association to attest that, to the signer’s knowledge and belief, the information in the application is accurate, has been reviewed by an attorney, and that the project complies with local and state regulations.

The signer also must warrant that he or she has no knowledge of circumstances that might have an adverse impact on the project, including construction defects, “operational issues,” or legal problems. The federal penalties remain, but consultants such as Gardner say the revisions should alleviate “a lot of the fears” boards had with the previous language.

The rule changes published Thursday are “temporary” until FHA replaces them with formal, final regulations that would be preceded by proposed rules giving the industry additional opportunity to seek improvements. The new policies also represent the culmination of lengthy negotiations between FHA and industry groups, including NAR, CAI and consulting and management firms that started last spring.

At a conference held by the Northern Virginia Association of Realtors Thursday, acting FHA commissioner Carol J. Galante said the revisions show “that we listened” to the critiques from the industry, while still protecting the government’s insurance funds.

Under the previous rules, condo associations abandoned FHA in droves, even at significant costs to their own unit owners who suddenly had difficulty selling because FHA financing was no longer available to purchasers.

Only one out of 10 condo associations that would normally qualify for FHA financing currently is certified, according to Gardner, whose firm maintains a massive database of information on condos. HUD confirms that just 2,100 out of a possible 25,000 projects had obtained certifications or recertifications as of late last year.

The human costs of the previous rules were sometime extreme, Gardner says. In one case, an elderly woman who owned a unit in a non-certified community sought to obtain an FHA reverse mortgage in order to help pay the costs of her cancer treatments. The condo board said no — it didn’t want to run the certification gauntlet or take on the legal liabilities.

Among the key changes now in effect:

  • The investor ownership limit in existing projects has been raised to 50 percent. Previously there was a 10 percent cap on the number of units owned by any single investment entity. Now the rule states that “any investor/entity (single or multiple owner entities) may own up to 50 percent of the total units…if at least 50 percent of the total units in the project” are owned or under contract for purchase by owner-occupants.
  • The percentage of space used for commercial/non-residential purposes in a project is limited to 25 percent, but applicants can request exceptions up to 35 percent and even above in certain mixed-use developments that are still “primarily residential” in character and where the project is “free of adverse conditions to the occupants of the individual condominium units.”
  • Condo associations in which as many as 15 percent of unit owners are 60 days delinquent on their condo fees will now be eligible for certification. Under the previous rules, no more than 15 percent could be 30 days late. This was a major issue for many associations since they didn’t track 30-day delinquencies. Industry groups had sought a 90 day delinquency standard.
  • Previous confusion over FHA requirements on fidelity bonds for management companies — with coverage that sometimes duplicated what was already maintained by the condo association itself — appears to be resolved. If the association’s fidelity bond policy names the management company as an insured or agent, it should pass muster.

Source: Ken Harney, Inman News

Real estate doom and gloom…NOT!

October 6, 2008 by · Leave a Comment 

With all of the negative press that we’re exposed to throughout the day, we need to remember that the real estate market, at least, is still alive and well.  Since the government’s ‘sudden recognition’ that it was broken, changes have been made to push the industry in a healthy direction.  That is, by making affordable mortgage money available to the masses…at least those who meet modest guidelines & can PROVE IT!

 

FHA and VA programs are still great for home buyers with less-than-stellar credit who have 3% in savings to put towards a down payment.  (Note this amount is expected to rise to 3.5% in Maricopy County by the end of the year.)

 

And you remember the $7500 tax credit for first time home buyers (or those who have not owned a home in 3 years)?  It’s still there.  It’s basically an interest-free loan equivalent to a 3% down payment on a $225,000 house.  How cool is that?

 

My point is that, while everyone’s nervous (at a global level!) about what’s going on in today’s financial markets, we need to keep at least the real estate piece in perspective.  The lending landscape is going to continue to evolve more rapidly than normal in the upcoming months, but I believe in a direction that supports sustainable, healthy, & responsible housing markets.

 

If you’re looking for Phoenix real estate or Scottsdale real estate, a good Realtor can connect you with a reputable lender who can give you more guidance and input on the various mortgage programs that may be available to you.