Miami Hearald: The Federal Housing Administration is giving the condo market something it hasn't had for a while -- a little breathing room.

[Barry Ansbacher]

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Posted on Wed, Nov. 11, 2009
FHA moves to boost condo market

BY MONICA HATCHER
mhat...@MiamiHerald.com
The Federal Housing Administration is giving the condo market
something it hasn't had for a while -- a little breathing room.

Last week, the FHA, the federal agency that insures low-down-payment
home loans for private lenders, said it was relaxing its building
underwriting guidelines as a way of helping the struggling sector ride
out the downturn. The move could help boost sales in condos by making
more FHA mortgages available to borrowers.

``The best way to bring back some level of security is to get new
buyers into those vacant units. You can't do that until new homeowners
have access to financing,'' said Meg Burns, director of the FHA's
single-family program development.

The new rules -- which are temporary -- come after more than a year of
more stringent standards from lenders, who, after suffering major
losses on condos, began vetting and disqualifying condominium projects
for purchase loans, regardless of whether home buyers qualified.

``This might be an entree for traditional and conventional lenders to
return to the marketplace. Symbolically, it's a pretty significant
move,'' said Peter Zalewski, a condo market analyst and broker with
Condo Vultures in Bal Harbour.

The temporary rules are effective for most of the coming year and will
help the marketplace transition into a new set of tougher guidelines
that bring FHA into closer alignment with the project underwriting
practices of Fannie Mae.

Earlier this year, Fannie implemented a slew of new regulations
governing condo projects that some claim have strangled the market by
stigmatizing Florida condo loans.

Similar to Fannie regulations, the FHA is also now singling out
Florida condos for special attention by approving projects itself,
rather than lenders. Burns said lenders and investors were reluctant
and even ``scared'' to lend money in Florida, prompting the agency to
step in as a way of calming nerves.

`FEEL CONFIDENT'

``We're coming in and saying we'll approve the projects and back them
so you will feel confident and comfortable lending in this
environment,'' Burns said.

Securing the blessing of the FHA is important because it allows
borrowers to get loans that require down payments of only 3.5 percent
and qualify under less burdensome terms.

Most conventional loans now require 20 percent down, keeping
creditworthy borrowers on the sidelines. In some new projects, lenders
have asked for down payments of as much as 40 to 50 percent.

Among the new, temporary rules is a measure extending a deadline
allowing lenders to submit mortgage loans for spot approval in
buildings that have not been approved for FHA lending. The
administration had said the so-called spot loans would be eliminated
by the end of the year, but the new deadline is February 2010.

The new guidelines also:

• Increase from 30 percent to 50 percent the number of units in a
project that can be financed with FHA loans. FHA, however, will make
exceptions, even allowing up to 100 percent, when buildings meet an
additional set of more stringent criteria.

• Require at least 50 percent of units in a complex to be owner-
occupied or sold to owners who plan to live in the units. Bank-owned
units may be disqualified from the percentage calculation.

• Reduce a presale requirement in new construction to 30 percent,
compared with 70 percent for loans from conventional lenders.

``This temporary guidance represents incredible leniency in terms of
financing standards and loan standards,'' Burns said.

REPRIEVE PRAISED

It's hard to say how many buildings may benefit from the new rules,
but mortgage brokers and real estate observers applauded the reprieve.

``This should really help some of the stalled projects if they can get
their buildings approved,'' said Grant Stern, a mortgage consultant in
Bay Harbor Islands who specializes in Fannie Mae and FHA guidelines.
``A lot of these buildings looking to sell out the rest of their
inventory should be able to get FHA approval to close out the
projects.''

There will be more hurdles to overcome beginning Dec. 7, however.
That's when a bevy of additional regulations take effect, including a
provision that withholds approval from buildings where more than 15
percent of unit owners are past due on association fees.



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