FHA Push: Good for Condos? Critics Say No

Critics Say New Mortgage Rules too Hard on Developers

Chicago Sun Times, By David RoederDecember 8, 2009  The Federal Housing Administration began enforcing new rules Monday that it said will help more condominium buyers qualify for mortgages. Critics, however, said some of the rules will make it harder for builders to deliver new condo buildings. They also said the FHA is stepping up scrutiny of condo management associations, which could curb loan approvals. Critics charge that new rules being enforced by the Federal Housing Administration will make it harder for builders to deliver new condo buildings. The FHA says the rules will help more buyers qualify for mortgages.  Highlights of the new policy on loans in condo buildings:  Temporary Changes

• 50 percent owner-occupancy minimum excludes vacant and tenant-occupied units.       
• Condo pre-sale threshold reduced to 30% from 50%.
•  Cap on FHA loans in a building raised to 50 percent from 30 percent; can go to 100 percent in certain cases. 

Permanent change

• Eligible buildings’ association must have at least 10% of budget in a reserve fund.
• No more than 10% of units can be owned by one investor.
• No more than 15% of units can be at least a month in arrears on association fees.    

Loans now OK when associations have right to reject a buyer, provided there is no discrimination. “What the government gives with one hand, it takes away with the other,” said David Hanna, immediate past president of the Chicagoland Association of Realtors and managing partner at SourceOne Realty. Hanna pointed to a new FHA requirement that it will approve loans only in buildings whose condo association has deposited at least 10 percent of its annual budget in a reserve account for maintenance and repairs. He said the 10 percent threshold is too high for buildings with few units. Also, the agency said it will not approve loans for buildings in which more than 15 percent of condo units are more than a month late in their assessments. In addition, no more than 10 percent of a building’s units may be owned by a single investor. FHA officials said the rules are necessary to ensure consumers are purchasing units in viable buildings and to help ensure that defaults on condo projects don’t rise too high. “We believe that we have a balanced policy that is flexible … yet will help us manage and mitigate the risk,” said Joanne Kuczma, head of the FHA home mortgage insurance division. While the rules could be tough for builders, they will protect consumers because lenders will be forced to be more careful about which projects they fund, said Richard Vetstein, a real estate lawyer in Framingham, Mass. “On the whole, it’s a good thing,” he said. “Financially sound condominiums make better investments.” The FHA insures roughly one in four new loans. Its program has been popular because buyers need only a 3.5 percent down payment. But roughly 18 percent of loans insured by the FHA are either delinquent or in foreclosure, and the agency’s financial cushion has dipped below the federal minimum. Some of the changes were a concession to lobbyists. On a temporary basis, it lowered minimum requirements for a new project’s pre-sales.  Critics, however, say the industry’s influence on the process shows that the agency is all too willing to bend to pressure, and say the condo loans will be highly prone to default and foreclosure. “Rather than stopping the foreclosure mess, we’re actually adding more foreclosures to the mix,” said Edward Pinto, a consultant and FHA critic.

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On Wednesday, May 20, Governor Linda Lingle signed Senate Bill 34 into law, which exempts licensed real estate brokers and salespersons who act within the scope of their license from the definition of “distressed property consultant” under the Mortgage Rescue Fraud Prevention Act.
 
The bill also prohibits a licensed real estate broker or salesperson from acquiring an ownership interest in the distressed property, directly or indirectly, within 365 days after a listing agreement for the same distressed property has expired, or is terminated.
 
The new law will become Act 66 of the 2009 Legislative Session and takes effect immediately.
 
An advisory bulletin from HAR and frequently asked questions (FAQ) document will be available in the coming days.

As a CERTIFIELD SHORT-SALE PROFESSIONAL (CSP) I have tools to effectively negotiate with all banks and lenders to get the transaction completed.   

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ADU Deadline - December 15, 2009

On November 22, 2006, Ordinance No. 843 was adopted granting a “limited right” for a final three (3) year period to allow landowners on Agriculture and Open Zoned properties with a certified ADU Facilities Clearances completed by June 15, 2007 to apply for building permits for their ADUs.  

This ordinance established December 15, 2009 as the last day of the 3 year period that building permits can be issued for the affected ADUs.With this in mind, we feel that it is important to inform your clients of the impending final December 15, 2009 deadline.  
 

The County of Kauai cannot issue a building permit for an ADU in the Agriculture and/or Open zone after December 15, 2009 even though landowners permit applications were filed before the deadline.For more information contact the County of Kauai Planning Department at 241-6677.

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Climate in Hawaii is the perfect place to grow our own food but at least 85 percent of Hawai‘i’s food is imported  and by replacing just 10 percent of imported food with locally grown, $313 million would go back in to Hawai‘i’s economy, as well as generate $6 million in tax revenue, and create more than 2,300 jobs, according to the DOA Food Sustainability December report.

The DOA is beginning to designate the long-awaited Important Agricultural Lands across the state to help local farmers to flourish and supply this food.

Hawaii Department of Agriculture and Important Agricultural Lands

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