Is a little-publicized switch in federal mortgage policy causing huge problems for condominium
sellers, buyers and homeowner association boards across the country — even depressing prices
and blocking refinancings?
Condo industry leaders, from the 30,000-member Community Associations Institute to
individual unit owners and real estate agents, are emphatic that the answer is yes. They say a
series of rule revisions by the Federal Housing Administration has caused thousands of condo
projects to become ineligible for FHA mortgages. This, in turn, has abruptly shut off loan money
for would-be condo buyers and refinancers, forcing them to pursue conventional bank loans
requiring much higher down payments — sometimes 20 percent and higher versus the FHA’s 3.5
percent minimum — that they often cannot afford.
For its part, FHA says the rule changes it has adopted, which focus on project budgets, insurance
and financial reserves, have been prudent and are designed to avert losses from delinquencies
and foreclosures. But the agency confirms that thousands of condo projects have failed to obtain
or apply for required recertifications under the new rules. Out of approximately 25,000 condo
projects nationwide with expiration dates for FHA eligibility between last December and Sept.
30 of this year, only 2,100 — just 8.4 percent — have been approved or recertified by the agency,
according to Lemar Wooley, an agency spokesperson.
“This has been a nightmare,” said Ryan O’Quinn, a unit owner in a townhouse community
in Calabasas, Calif. O’Quinn, who is a member of the board of directors of the homeowners
association, has been trying to sell his condo since May. He has had multiple offers and been in
escrow four times — twice with the same purchaser — but because the community’s eligibility has
lapsed, buyers who need FHA financing have been rejected by lenders.
In the meantime, O’Quinn has cut his asking price several times for a total of $81,000 — a value
decline that his agent, Anna Nevares of the brokerage Redfin, attributes directly to FHA’s policy
revisions. Not only did FHA fail to inform the condo board about the changes, according to
O’Quinn, but every time the board submitted applications for recertification, they were rejected
on technical grounds. In one instance, he said, the agency turned down the application solely
because the reserve-fund bank account for the condo project did not carry the words “reserve
In the Maryland suburbs outside Washington D.C., similar scenarios have been playing out.
Nancy Jacobsen, executive vice president of Community Paperworks Inc., a consulting firm that
assists condo associations, said “there are entire Zip code areas where not one condo can meet
the new requirements.” Unit owners in such projects find themselves unable to either refinance
into today’s 4 percent mortgage market or to sell.
Bernard Robinson, an owner of a unit in District Heights, Md., said that because of delinquencies
on homeowner association payments in his development that exceed FHA’s limit, he and his wife
have not been able to refinance.
“We are qualified to refinance personally,” he said in an interview, but because the development
is not certified, “our unit isn’t. We’ve exhausted all our options. They’re going to force us to walk
Critics say that FHA did not consult adequately with the condo industry before changing its rules
— a charge FHA denies — and contend that the agency did not think through some of its policies.
Andrew Fortin, government affairs director of the Community Associations Institute, says the
rule that is hampering Robinson’s refinancing — that no more than 15 percent of the unit owners
in a project be 30 days or more delinquent on their association dues — is often impossible for
volunteer boards of directors in large projects to keep track of, much less to certify to FHA.
Even worse, according to other critics, the new rules put board members into legal jeopardy by
requiring them to sign certifications attesting that the condo documents comply with all local
statutes and that they have no knowledge of situations that could cause any unit owner to become
delinquent at some later date. The mandatory certification carries a maximum penalty of $1
million in fines and 30 years imprisonment if found to be incorrect. Large numbers of condo
boards have balked at this requirement, critics say, leading to the drastic drop in certification
requests and condo eligibility.
Bottom line for unit owners, sellers and buyers: If an FHA loan figures in their plans, they
should first check with the condo board. If the project isn’t certified, they are cut off — at least for
now — from some of the most favorable mortgage terms in the marketplace.
Kenneth Harney is a syndicated real estate columnist.