By David C. Swedelson, Senior Partner SwedelsonGottlieb, California Condo Lawyer and HOA attorney
Interesting article in the October 23, 2011 edition of the Los Angeles Times regarding recent rule revisions by the Federal Housing Administration (FHA). Follow this link to read the article. We have been reporting on this issue, follow this link to read our blog post from August 21, 2011, “CAI Slams latest FHA Guidance”. As pointed out by the article, a little-publicized switch in federal mortgage policy is causing problems for condominium sellers, buyers and homeowner association boards across the country.
The recent series of rule revisions by the Federal Housing Administration has apparently caused thousands of common-interest developments to become ineligible for FHA mortgages. The article suggests that this has abruptly shut off loan money for would-be buyers and refinancers, forcing them to pursue conventional bank loans requiring much higher down payments – sometimes 20% or higher versus the FHA’s 3.5% minimum – that they often cannot afford.
The FHA defends the rule changes it has adopted, which focus on community association budgets, insurance and financial reserves, as having been prudent and designed to avert losses from delinquencies and foreclosures. The FHA nonetheless acknowledges that thousands of community associations have failed to obtain or apply for required recertifications under the new rules. “Out of approximately 25,000 common-interest developments nationwide with expiration dates for FHA eligibility between last December and Sept. 30 of this year, only 2,100 – just 8.4% – have been approved or recertified by the agency, according to Lemar Wooley, an agency spokesman.”
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