Manager's Column: FHA It is Relevant
By Jim Banno, Community Association Manager, Imagineers
It's a toss up as to which is more disconcerting, the attempt by the Federal Housing Administration (FHA) to develop a "one size fits all" approval process for the FHA backed condominium mortgages, or realtors, lenders and others extolling condominium associations and their managers to get busy and get their properties FHA approved. Equally disturbing are those condominium associations that dismiss the whole FHA eligibility process as irrelevant or unimportant.
Let's start first with the poorly informed associations that feel the FHA loan program is not relevant to them. FHA insured mortgages clearly increase the number of available buyers by opening the real estate market to low and middle income buyers through both lower down payments and lower monthly income levels. These components, by the way, can be equally important to first-time home buyers as well as retirees. If one needs to be convinced that more buyers help support sales price, just look at today's housing market. Even those communities where units sell at high prices, it should be noted that there are no income limits for borrowers and while FHA does limit loan amounts it apparently does not limit the amount that can be paid for a condo unit. Likewise, today's shaky financial markets have caused lenders to tighten lending criteria and some are apparently using FHA's criteria to evaluate privately insured loans.
FHA is no longer in the business of allowing spot approvals. While it is understandable that they must have criteria to evaluate a condo unit and its association's fiscal condition in order to differentiate between reasonable good and bad risks, it would be preferable if they developed reasonable and objective requirements. Rather, a cumbersome and potentially costly new process has been established that requires a condominium project be repeatedly FHA approved before FHA insured mortgages can be issued for any condo units within that project - apparently lenders cannot piggyback on prior FHA project approvals. Making matters worse are a few of FHA's one size fits all "project eligibility requirements" that elude logic. For example, one requirement is that not more than 15% of the total units can be delinquent more that 30 days in the payment of their common charges - what happened to the analysis of the association's collection policies and practices and their impact on actual bad debt "write-offs?"
Another ominous dictate is that the budget "provides for funding of replacement reserves....at least 10% of budget. Does this equally and objectively evaluate fiscal prudence in a newer community with minimal infrastructure needs vs. an older community with many amenities? There is room for leeway via a reserve study analysis by a lender but there is no apparent model or standard for the reserve study itself.
Lastly, those admonishing condo associations for dragging their feet in getting their projects FHA approved ought to spend a little more time reading FHA's Mortgage letters pertaining to project approval. While condominium associations and their management companies will be the purveyors of much of the material required for the project approvals, lenders with direct endorsement authority are the only entities that can reasonably and expeditiously initiate and culminate any project review and approval.
What is needed to develop working solutions to these new FHA requirements is a better understanding of how the process works and interdisciplinary cooperation to find the most efficient and effective way to get the job done.
Thank you for reading the Imagineers Board Newsletter. If you have any question or need any additional information on any articles provided in this newsletter, please contact us at 1-800-560-7268.Imagineers LLC