FHA condo lending regulations could soon relax

With housing affordability currently hovering near an all-time high, one government agency plans to loosen restrictions on financing options in the condominium market in the hopes it will increase borrowing.

With housing affordability currently hovering near an all-time high, one government agency plans to loosen restrictions on financing options in the condominium market in the hopes it will increase borrowing.

The Federal Housing Administration recently announced that previous lending regulation, developed to protect the agency's emergency insurance fund, may soon be changed to give the condo market more breathing room.  

"While we are evaluating potential changes to our condo requirements and expect to announce some of those soon, we cannot yet comment on specific requirements that may be included in any potential changes," a HUD spokesperson said.

Condo lending regulations set for transformation

Specifically, one current regulation that could undergo changes is that the FHA would not originate home loans to borrowers trying to purchase a condo in a development if more than 15 percent of the current occupants are delinquent on their association dues. In addition, the same rules applied if less than half of the units were owner-occupied on development constructed more than a year earlier and if more than 10 percent of the condos in a single build are owned by one investor alone.

"Community Associations Institute anticipates FHA will modify its standard on assessment delinquencies to allow flexibility for associations," the CAI said, according to HousingWire. "CAI has argued the existing standard that no more than 15 percent of units may be 30 days past due on assessments is too strict."

Since the FHA only funded the purchases of 3,630 condos in March, which is a 15 percent decrease from the previous year, experts hope that modifications to these lending regulations could help to increase this rate.

Affordability reaches new high

Some experts say these changes could not have come at a better time. During the first quarter this year, the relationship between mortgage rates, median household incomes and property values made the prospect of purchase a home the most affordable it has even been, according to the National Association of Home Builders. However, some experts from the industry group fear that overly strict lending regulation will continue to pose as an obstacle.

"Homes in this year’s first quarter were more affordable than they have been at any time in more than 20 years, yet many potential sales are not happening because of overly tight lending conditions that are keeping hardworking families from obtaining a suitable mortgage," said NAHB chairman Barry Rutenberg.



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