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by G. Steven Bray
FHA condo loans are way down, and this has caught the attention of Congress. Because of FHA’s rigid and burdensome certification process, barely 20% of previously eligible condo complexes remain certified for FHA loans.
Faced with a Congressional spanking, FHA recently announced some changes to its process. However, the changes are pretty weak and seem unlikely to convince many condo associations to seek certification.
The most significant change is that FHA will allow condo units that are second homes to count towards the 50% owner-occupancy requirement for certification. Congress had suggested relaxing the requirement to 35%.
In addition, FHA slightly reduced the paperwork required to recertify a complex, but it still requires recertification every 2 years. Congress had suggested lengthening that to 3 or 4 years.
The changes don’t address spot approvals, which allowed lenders to make FHA loans on single units in non-certified complexes with certain restrictions. FHA dropped spot approvals a few years back.
The changes are temporary while FHA pursues formal rulemaking. We can hope that the formal process will include spot approvals again.
HUD may be moving slowly because of concerns about fraud. The owner of a FL mortgage company was convicted recently of making FHA condo loans to unqualified borrowers. However, the crime occurred during the go-go days prior to the financial crisis. Rules have been tightened significantly since that time. Besides, the fraud didn’t concern the condo’s certification but rather the borrower’s qualification. It doesn’t make sense for FHA to equate the two.