Condominiums offer an affordable option and are the first step to homeownership for many home buyers. In many areas across the country, the real estate crisis left the condominium market devastated. Today, the condo market isn't stabilizing as quickly as other types of housing, resulting in significant losses for current condo homeowners and tighter underwriting guidelines for potential buyers. In order for the housing economy to stabilize, it is important that there be a healthy condo market.
NAR has urged the Federal Housing Administration (FHA) and the GSEs (Fannie Mae/Freddie Mac) to develop policies that will give current homeowners and potential buyers of condos access to more flexible and affordable financing opportunities and a wider choice of approved condo developments. For example, NAR has been particularly vocal about changing the minimum owner-occupancy rates currently required by FHA and the GSEs, which can pose a roadblock to both buyers, sellers and lenders.
On February 2, 2016, the House of Representatives passed H.R. 3700, the “Housing Opportunity Through Modernization Act of 2015”, introduced by Reps. Luetkemeyer (R-MO) and Cleaver (D-MO), by a unanimous vote of 427-0. On July 14, 2016, the bill passed the Senate by unanimous consent with the leadership of Senators Menendez (D-NJ) and Scott (R-SC).
On July 29, 2016, President Obama signed H.R. 3700 into law.
This legislation made 4 changes to FHA's current condo policy. H.R. 3700 will: 1) reduce owner-occupancy ratio to 35% unless HUD acts within 90 days of enactment of this law to otherwise lower the ratio; 2) allow lenders to approve condos with commercial space over 25%; 3) require HUD Secretary to “substantially reduce” burdens on condo recertification; and 4) require FHA to mirror the FHFA rules related to private transfer fees.
On September 27, 2016, HUD published a proposed rule to implement the provisions of HR 3700, and make other changes to condominiums. NAR submitted a comment letter urging significant easing of condo restrictions. The NAR letter specifically asks FHA to:
- Remove the strict requirement on owner-occupancy levels, with a minimum of implementing HR 3700 standard of allowable 35% owner-occupancy without additional requirements;
- Allow 100% FHA loan concentration in buildings;
- Allow up to 45% commercial space without documentation and implement HR 3700 requirement allowing lenders to approve waivers and consider local conditions;
- Bring back spot-loan approval;
- Increase certification periods and allow for updates to information for re-certification purposes; and
- Support for new transfer fee requirement allowing beneficial transfer fees connected to condominiums.
With the change in Administration, the final rule has been delayed, but is expected by the end of 2017.