FHA changes could pose serious financing problems for all classes of buyers

By Michael Stoler | November 10, 2009 04:11PM

As condominium unit sales increase, developers are facing difficulties with the financing of end loans for individual buyers.

A principal at the Hudson Companies, the developer of two new projects, Third and Bond in Carroll Gardens and Riverwalk Court in Roosevelt Island, said, “We are not having a problem with end loans for our buyers. Many financial institutions are in the market; nevertheless, unless a project has sales of 50 percent or more, [Federal Housing Administration] and Fannie Mae options are not available in these developments.”

Significant changes to FHA condo financing, which are set to take effect Dec. 7, could have serious ramifications for developers, condo associations, buyers and sellers.

Some of the highlights of these proposed changes are:

1. Any condo development approved prior to Oct. 1, 2008, loses its FHA approval and must formally reapply.

2. No spot approvals for an end loan at the condo development site. All applications must go directly to FHA.

3. Existing condos, regardless of whether they were FHA-approved prior to Oct. 1, 2008 or not, will have to reapply for Department of Housing and Urban Development approval. This means that if a seller wants to sell his condo unit, even if he received a FHA loan in 2006, and he is a new borrower, he won’t be able to get a FHA loan or his unit unless his condo has been re-approved by HUD.

A number of developers are working with local lenders to secure financing for their condos and co-ops.

The DeMatteis Organization and the Mattone Group, developers of the Azure, a condo at 333 East 91st Street at the corner of First Avenue, is promoting on its Web site: “80 percent loan-to-value jumbo mortgages [are] immediately available at great rates.” The developers have advised me that prospective purchasers who are interested in the financing program can secure first mortgages at rates starting at 4.625 percent on five-year interest adjustable-rate mortgages, or ARMs. Ten-year ARMs are also available.

With interest rates continuing to be at record lows, individuals are seizing the opportunity of homeownership. Unfortunately, much of the money center financial institutions who state they are financing deals are failing to close on the required financing for the qualified borrowers.

At the same time, developers of under-construction affordable condo and co-ops who have developed these projects in a public-private partnership with New York City are having severe difficulties in securing the necessary financing.

Michael Stoler is a columnist for The Real Deal and host of real estate programs “The Stoler Report” and “Building New York” on CUNY TV and on WEGTV in East Hampton. His radio show, “The Michael Stoler Real Estate Report,” airs on 1010 WINS on Saturdays and Sundays. Stoler is a director at Madison Realty Capital as well as an adjunct professor at NYU Real Estate Institute, and a former contributing editor and columnist for the New York Sun.