The Federal Housing Administration has released its most recent revisions to the guidelines for condominiums seeking approval for FHA-backed mortgage loans.
The revisions go into effect immediately and will expire Aug. 31, 2014. The revisions were made in response to criticism of last year’s revisions, which were implemented largely without public input and were widely viewed as being so burdensome as to make it virtually impossible for many condominiums to qualify for these important federally backed mortgages.
FHA approval is crucial to marketability for condos, since 30 percent to 50 percent of condo purchases are made with FHA-backed mortgages.
While some of the revisions will affect only a few condo projects, the revisions that will have the most wide-reaching effect include:
• Delinquencies: No more than 15 percent of the condo units may be more than 60 days delinquent in payment of condo association assessments. The previous guidelines used 30 days as the threshold.
• Fidelity bonds or insurance: All condos consisting of 20 units or more must obtain “employee dishonesty insurance.” The policy must cover all officers, directors, and employees of the association or others handling association funds, and must be in an amount at least equal to three months’ of assessment income, plus the reserve funds.
If the association employs a management company, either the management company must have its own bond or insurance, or the association must obtain a separate policy or an endorsement to its existing policy covering the management company and its employees who handle the association’s funds.
The previous guidelines mandated separate coverage for the management company, which would essentially require double coverage for professionally managed condominiums.
• Relaxed certification requirements for obtaining certification for mixed-use condominiums, which include commercial or office condos along with residential.
• Relaxed pre-sale and owner-occupancy requirements for new condo projects.
• Eased paperwork: FHA has eased the onerous burdens on the person submitting the certification forms, allowing this person to state that the information on the application is correct to the best of his knowledge; that the condo project complies with all state and local laws; and that the applicant has no knowledge of any factors that could adversely affect the condominium (such as construction defects, pending litigation, or environmental contamination).
The previous guidelines required the person submitting the application essentially to guarantee the accuracy and truthfulness of the statements contained in the application – at the risk of huge fines or imprisonment for submitting an application with incorrect or missing information.
The FHA has reserved the right to change any of the guidelines at any time if it determines that market factors have put the federal mortgage insurance fund at risk. In other words, what the government giveth, the government can taketh away.