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FHA backing becomes silver bullet for some condos, headache for others
The Crown Condos
Some see Federal Housing Administration condominium re-certification
as a great tool to move units in a stagnant market. Others complain about
opaque and arbitrary rules governing decisions as to which projects get
recertified.
The only certainty: Out of the thousands of eligible condo projects across
the country, few have even applied to be recertified. (See chart below for the
largest condo projects in New York, with a pending deadline.)
For those condo projects that do get certification, it opens up a new
market segment for them to sell units. That’s because most conventional
mortgages and cash buyers are still hard to come by.
“It really is one of the only games in town when it comes to mortgages,”
said Lisa Magill, a real estate attorney and partner at Becker & Poliakoff in
Fort Lauderdale.
Still, condo boards are not rushing to get the agency’s blessing.
In January and February, the FHA approved 286 projects and rejected
89 re-certifications across the country. That includes none in New York,
according to FHA officials.
In 2010, FHA recertified three projects in New York, and it found eight
others ineligible. The Crown Condominiums at 580-600 Crown Street in Crown Heights was the only New
York City project to get the nod from FHA.
There are about 430 condo projects in New York City that are facing
deadlines to get recertified, according to FHA data.
The Federal Housing Administration’s re-certification basically insures
lenders against default. More than 25,000 condo projects missed a
December deadline to get approval for using FHA-insured mortgages. So
FHA instituted a new series of rolling deadlines. But that doesn’t seem to
have spurred much recertification activity.
Even with the current problems, FHA says the recertification program helps
make sure it’s backing buyers in financially stable condos, and not throwing
money at troubled projects. For those condos that do get the recertification,
they can sell units to the 30 percent of buyers who are seeking FHA-
backed loans.
“I do think there’s a lot of opportunity for these condo boards,” said Vicki
Bott, a deputy assistant secretary in the Federal Housing Administration.
In New York, few have moved to get FHA approval because the high-
priced Manhattan condo market doesn’t lend itself to such a program, said
Craig Price, a real estate attorney and partner at Belkin Burden Wenig &
Goldman, LLP in Manhattan. It may only make sense for stalled condo
projects in an outer borough, he said.
Even so, it’s a lot of money, time and paperwork. Price said he closed an
FHA-backed deal recently in New York which saw a five-month approval
process, and that was for a single-family home.
The frustrations have grown enough that the Community Associations
Institute, which represents thousands of condo associations across the
country, recently fired off a letter to FHA officials complaining about the
criteria and process the agency was using in making its decisions.
“CAI’s membership is making every reasonable effort to comply with FHA
condominium insurance program requirements, with many condominiums
spending as much as $6,000 to submit their condominium for certification
or recertification ….,” wrote Thomas Skiba, CAI’s CEO. “For this process
to work smoothly for both condominium associations and FHA, the
rules governing the program should be clear and consistent as well
as transparently and evenly applied by the homeownership centers.
Regrettably, this has not always been the case…”
FHA is all over the map with the rules on what percentage of a condo can
be rentals, said Andrews Fortin, vice president of government and public
affairs for the Washington DC-based CAI. Some criteria don’t even reflect
the fiscal health of the condo, and the agency hasn’t made it clear what the
rules are, he said.
“They’re essentially doing this by decree,” Fortin said.
FHA officials said that they’re working on addressing some of the issues
raised by CAI. The program has only been around for about a year, and
they’re planning on issuing new guidance on the program in June, they
said.