Insurance news and information

The idea for the Federal Housing Administration’s new rules and enforcement was to allow for more buyers to qualify for FHA loans, thus increasing business for condo and apartment associations. But how good is it?

In fact, realtor associations and builders groups are opposed to the new rules, stating that the FHA has just made it that much harder for new building projects to be delivered and for existing apartment and condo complexes to qualify for the federal lending program. Apartment and condo associations agree. One section of the new FHA rules limits how many buyers of condo and apartment units can get an FHA loan. And the rules limit the number of FHA-backed loans to half of the existing units in a building.

 Among some of the new requirements is the stipulation that loans will be approved only for units in buildings where the association boards have deposited a minimum of 10 percent of its annual budget in a maintenance and repair reserve account. If your association property has a small number of units, the requirement puts FHA loans out of reach for your unit buyers.

Worse is if your association is over a month late in assessments, your buildings are excluded from FHA qualification. Likewise, if more than 10 percent of all units are owned by more than one investor, the property will not qualify.

The new FHA rules and enforcement are designed to safeguard the financial health of the organization, which is holding either delinquent or foreclosed status on 18 percent of its insured loans. Its own financial reserves are now below federal minimum standards.

If your association’s property is already above the federal loan threshold, there’s not much you can do to bring your property within compliance. Talk with an experienced association insurance broker to understand how these new rules will affect your association and what steps you can take to protect against the financial impact of the new federal loan limits.

Has your association been affected by the new FHA rules? If so, how?

flickr photo credit: HUD Public Affairs

For additional information:

HUD: Condo/PUD/Subdivision Lookup

HUD: Mortgagee Letter 2009-46B: Condo Approval Process for Single Family Housing

HUD: Mortgagee Letter 2009-46A: Temporary Guidance for Condominium Policy

HUD: Mortgagee Letter 2009-46 A & 2009-46B Frequently Asked Questions