Home ownership affordability is at a record high due to low home prices and all-time low mortgage rates. But housing experts have blamed banks' tightened lending standards for keeping more buyers on the sidelines because they are unable to qualify for financing.
Lending standards increased sharply after the financial crisis in 2008, and even after the recession ended in 2009. Lenders have yet to ease their stricter standards, according to a report by Goldman Sachs economists Hui Shan and Jari Stehn.
Why? The researchers say it’s mostly because there’s less money available to lend.
“During the housing boom, as brokers produced a flood of new mortgages, Wall Street bankers churned out a torrent of mortgage-backed bonds for investors waiting to snap them up,” an article at MSNBC.com notes, in describing the study’s findings. “That market has all but vanished; 90 percent of new mortgages written today are backed by the government.”
Also, researchers found that lenders are swamped with more paperwork, which is also causing delays in processing. Many lenders have issued stricter documentation requirements before they’ll approve a loan. Nowadays, nearly 90 percent of mortgage applications require “full documentation” before getting approved. From 2000 to 2006, less than 60 percent of applications required “full documentation,” researchers found.
Source: “Tight-Fisted Mortgage Lenders Pressure Home Sales,” MSNBC.com (Jan. 27, 2012)
Monday, January 30, 2012
NAR’s Confidence Index shows upswing
The National Association of Realtors® conducts a monthly study on Realtors outlooks about the housing market, and the Realtors Confidence Index for single-family home sales in December increased to 31.6 from November’s 30.4. However, it increased 7.1 points in one year – since December 2010 – when it was 24.5. Overall, the Index has shown a slowly improving market outlook.
The index for townhouses was 18.5 in December down slightly down from November’s 18.7. A year earlier, however, it was 12.6. The index for condos also decreased to 14.3 from November’s 15.3, but one year earlier it was only 10.3.
The index also measured Realtors’ outlooks by region. Overall, the West had the highest outlook at 35.0, but the South – which includes Florida – came in second at 33.3. One year earlier, the South’s index stood at 25.1.
Overall, 55 percent of Realtors surveyed expect prices to rise over the next year, an increase from 50 percent only one month earlier; and 7 percent of Realtors expect prices to rise 5 percent or more compared to November’s 6 percent. On the flip side, 38 percent of Realtors expect prices to fall, but that’s less than the 43 percent who said the same thing one month earlier.
In an analysis, NAR Chief Economist Lawrence Yun said 2012 kicks off with “a significant amount of good news. … Existing home sales in December were up from a year ago. Pending sales – that is, contract signings – were 5 percent ahead of a year ago. Housing inventory – the number of homes available for sale – has declined (both for existing and newly built homes). Housing affordability continues at record high levels.”
Yun says that one major problem still hangs over the housing market, however: Many middle-class buyers have been shut out of the market because they cannot obtain a mortgage.
“Loan qualifications have become so strict since 2009 that only borrowers with super-high credit scores and spotless credit history are able to obtain mortgages,” Yun says. According to one-third of the Realtors surveyed, access to credit was the most important factor limiting clients’ ability to buy a home.
The complete Realtors Confidence Index is available online.
Source: Florida Realtors®
The index for townhouses was 18.5 in December down slightly down from November’s 18.7. A year earlier, however, it was 12.6. The index for condos also decreased to 14.3 from November’s 15.3, but one year earlier it was only 10.3.
The index also measured Realtors’ outlooks by region. Overall, the West had the highest outlook at 35.0, but the South – which includes Florida – came in second at 33.3. One year earlier, the South’s index stood at 25.1.
Overall, 55 percent of Realtors surveyed expect prices to rise over the next year, an increase from 50 percent only one month earlier; and 7 percent of Realtors expect prices to rise 5 percent or more compared to November’s 6 percent. On the flip side, 38 percent of Realtors expect prices to fall, but that’s less than the 43 percent who said the same thing one month earlier.
In an analysis, NAR Chief Economist Lawrence Yun said 2012 kicks off with “a significant amount of good news. … Existing home sales in December were up from a year ago. Pending sales – that is, contract signings – were 5 percent ahead of a year ago. Housing inventory – the number of homes available for sale – has declined (both for existing and newly built homes). Housing affordability continues at record high levels.”
Yun says that one major problem still hangs over the housing market, however: Many middle-class buyers have been shut out of the market because they cannot obtain a mortgage.
“Loan qualifications have become so strict since 2009 that only borrowers with super-high credit scores and spotless credit history are able to obtain mortgages,” Yun says. According to one-third of the Realtors surveyed, access to credit was the most important factor limiting clients’ ability to buy a home.
The complete Realtors Confidence Index is available online.
Source: Florida Realtors®
Can a mobile phone keep you safe on the go?
You’re walking alone late at night, and you sense someone is following you. Is it possible to get protection from your cell phone without calling the police?
“I have four daughters, so developing something that creates a layer of safety for those who feel vulnerable was important to me,” said Tom Rissman, CEO of PeopleGuard LLC and one of the developers of the StreetSafe app. “I wanted to create a sort of personal mobile security system, and that’s when we thought up StreetSafe.”
So why use StreetSafe instead of just calling 911?
“People think 911 can instantly track where a cell phone is, and that’s not the case,” he said. “It can take up to six minutes for the police to track a phone because they need to get permission (to do so). If someone is in our system, we have them on GPS and don’t need to get permission to track it, so it’s instant.”
Rissman said the app offers two options – green and red.
If you slide the red button, StreetSafe silently contacts your local 911 center with your location, tracks your every move through GPS and relays your position to the authorities, and transmits your identification information to the authorities age, physical description, etc.
“If you’re in danger, keep your finger next to the red alarm and tuck the phone into your pocket,” Rissman said.
If you slide the green option, you’re immediately connected to a call center staffed by trained safety advisors and off-duty police officers.
Rissman said StreetSafe’s non-emergency option – the green button – sets them apart, because it allows the user to talk to experts who can offer safety tips before things get dangerous.
“We call this the ‘walk with me’ service,” he said. “Our staff is trained to help with any circumstance. It makes people feel better to know it’s there, with or without a crisis.”
Concerned about your privacy? Rissman says the app is not a tracking device others can use against you. “Our information is kept solely to us and shared with the police and only the police” in case of emergency, he said.
“We thought this would be most popular with college students, but young professional women seem to be using it most,” he said.
Cost for the app varies from $19.99 a month to $149.99 a year and includes the security service. Find out more at StreetSafe.com.
Source: the Chicago Tribune. Distributed by MCT Information Services.
“I have four daughters, so developing something that creates a layer of safety for those who feel vulnerable was important to me,” said Tom Rissman, CEO of PeopleGuard LLC and one of the developers of the StreetSafe app. “I wanted to create a sort of personal mobile security system, and that’s when we thought up StreetSafe.”
So why use StreetSafe instead of just calling 911?
“People think 911 can instantly track where a cell phone is, and that’s not the case,” he said. “It can take up to six minutes for the police to track a phone because they need to get permission (to do so). If someone is in our system, we have them on GPS and don’t need to get permission to track it, so it’s instant.”
Rissman said the app offers two options – green and red.
If you slide the red button, StreetSafe silently contacts your local 911 center with your location, tracks your every move through GPS and relays your position to the authorities, and transmits your identification information to the authorities age, physical description, etc.
“If you’re in danger, keep your finger next to the red alarm and tuck the phone into your pocket,” Rissman said.
If you slide the green option, you’re immediately connected to a call center staffed by trained safety advisors and off-duty police officers.
Rissman said StreetSafe’s non-emergency option – the green button – sets them apart, because it allows the user to talk to experts who can offer safety tips before things get dangerous.
“We call this the ‘walk with me’ service,” he said. “Our staff is trained to help with any circumstance. It makes people feel better to know it’s there, with or without a crisis.”
Concerned about your privacy? Rissman says the app is not a tracking device others can use against you. “Our information is kept solely to us and shared with the police and only the police” in case of emergency, he said.
“We thought this would be most popular with college students, but young professional women seem to be using it most,” he said.
Cost for the app varies from $19.99 a month to $149.99 a year and includes the security service. Find out more at StreetSafe.com.
Source: the Chicago Tribune. Distributed by MCT Information Services.
Report: Villages top home seller in U.S.
The Villages, the giant active-adult community northwest of Orlando, was the top-selling master-planned community in the nation last year, according to a report released last week by a California-based real estate research firm.
Spanning parts of Lake, Marion and Sumter counties, the mega-development recorded 2,307 new-home sales last year. The second-most successful development was the Woodlands in Houston with 945 sales – fewer than half as many as the Villages, according to the report by John Burns Real Estate Consulting.
The Villages has only a handful of foreclosures because many of the residents paid cash for their new homes after selling their old dwellings up North. Retirees are typically drawn there for its 37 golf courses, 1,000-plus clubs and activities, and other amenities.
Looking at just the top 10 projects, eight were in the same list last year; this year there were two additions: Alamo Ranch in San Antonio, and Lakewood Ranch in Sarasota.
“With our new sports campus, new commercial construction this year totaling upward of $150 million, and new rental projects springing up, we’re proud that Lakewood Ranch has become the premier new-home destination on Florida’s West Coast,” said Rex Jensen, president of the developer, Schroeder-Manatee Ranch Inc.
Source: The Orlando Sentinel (Orlando, Fla.), Mary Shanklin. Distributed by MCT Information Services.
Spanning parts of Lake, Marion and Sumter counties, the mega-development recorded 2,307 new-home sales last year. The second-most successful development was the Woodlands in Houston with 945 sales – fewer than half as many as the Villages, according to the report by John Burns Real Estate Consulting.
The Villages has only a handful of foreclosures because many of the residents paid cash for their new homes after selling their old dwellings up North. Retirees are typically drawn there for its 37 golf courses, 1,000-plus clubs and activities, and other amenities.
Looking at just the top 10 projects, eight were in the same list last year; this year there were two additions: Alamo Ranch in San Antonio, and Lakewood Ranch in Sarasota.
“With our new sports campus, new commercial construction this year totaling upward of $150 million, and new rental projects springing up, we’re proud that Lakewood Ranch has become the premier new-home destination on Florida’s West Coast,” said Rex Jensen, president of the developer, Schroeder-Manatee Ranch Inc.
Source: The Orlando Sentinel (Orlando, Fla.), Mary Shanklin. Distributed by MCT Information Services.
Friday, January 27, 2012
First-Time Buyers More Willing to Compromise
When it comes to space and upgrades, first-time home buyers are more willing to compromise than repeat buyers, according to the National Association of REALTORS®’ 2011 “Profile of Home Buyers and Sellers.”
While they have big wish lists too, first-time buyers seem to be most driven by finding a home that offers a reasonable monthly mortgage payment.
"Single home buyers tend to value affordability above all when they are choosing a home and a neighborhood," says Jessica Lautz, NAR’s manager of member and consumer survey research. "They also focus more on living some place convenient to friends and family, as well as entertainment and leisure activities."
The median age of first-time home buyers is 31, and about 26 percent are married with children.
First-time home buyers tend to rate energy efficiency high on their wish list, as well as simple, no-hassle technology use in their house, the study finds.
But "even if they like the idea of solar panels, first-time buyers are not likely to spend an extra $20,000 to have them," says Stephen Melman, director of economic services for economics and housing policy for the National Association of Home Builders.
First-time buyers also are willing to compromise on space: The median-size of a home purchased by a first-time buyer is 1,570 square feet.
Overall, "the top three things that buyers want are a great room instead of a formal living room, a walk-in closet in the master bedroom, and a laundry room," says Melman. "First-time buyers want the same thing, but they are more likely to be satisfied with a small laundry room without an attached mudroom and with a smaller master bedroom and a smaller walk-in closet."
But one thing first-time buyers aren’t as willing to compromise on: Buying a home that needs a lot of repairs.
"Buyers that don't have any experience with home maintenance tend to be afraid of renovations, so home sellers should be sure to fix everything they can and make minor home improvements in order to appeal to first-time buyers," Melman says.
Source: “Size Matters Most to First-time Buyers,” HSH.com and Fox Business News (Jan. 26, 2012)
While they have big wish lists too, first-time buyers seem to be most driven by finding a home that offers a reasonable monthly mortgage payment.
"Single home buyers tend to value affordability above all when they are choosing a home and a neighborhood," says Jessica Lautz, NAR’s manager of member and consumer survey research. "They also focus more on living some place convenient to friends and family, as well as entertainment and leisure activities."
The median age of first-time home buyers is 31, and about 26 percent are married with children.
First-time home buyers tend to rate energy efficiency high on their wish list, as well as simple, no-hassle technology use in their house, the study finds.
But "even if they like the idea of solar panels, first-time buyers are not likely to spend an extra $20,000 to have them," says Stephen Melman, director of economic services for economics and housing policy for the National Association of Home Builders.
First-time buyers also are willing to compromise on space: The median-size of a home purchased by a first-time buyer is 1,570 square feet.
Overall, "the top three things that buyers want are a great room instead of a formal living room, a walk-in closet in the master bedroom, and a laundry room," says Melman. "First-time buyers want the same thing, but they are more likely to be satisfied with a small laundry room without an attached mudroom and with a smaller master bedroom and a smaller walk-in closet."
But one thing first-time buyers aren’t as willing to compromise on: Buying a home that needs a lot of repairs.
"Buyers that don't have any experience with home maintenance tend to be afraid of renovations, so home sellers should be sure to fix everything they can and make minor home improvements in order to appeal to first-time buyers," Melman says.
Source: “Size Matters Most to First-time Buyers,” HSH.com and Fox Business News (Jan. 26, 2012)
2011 Marks Worst Year on Record for New-Home Sales
Sales of new-home declined in December, dropping 2.2 percent, and marking the end to the worst year on record for new-home sales, the Commerce Department reported Thursday.
New-home sales reached a seasonally adjusted annual pace of 307,000 in December — less than half the 700,000 pace that economists consider healthy for the sector.
In 2011, 302,000 new homes were sold nationwide, overtaking 2010’s 323,000 sales that had previously marked the worst year for sales on record.
The new-home sector continues to struggle to compete against discounted distressed properties that are plaguing many markets and have put downward pressure on home prices. Builders also say tighter lending standards are preventing some home buyers for qualifying for financing, and appraisals of new-homes are coming in lower on the agreed upon purchase price, causing more deals to fall through.
In December, the median sales price of a new-home was $210,300, according to the Commerce Department.
"Although this [December] decline was unexpected, it does not change the story that housing has likely bottomed," Jennifer H. Lee, senior economist at BMO Capital Markets, told the Associated Press.
Source: “New Home Sales 2011: Worst Year on Record,” Associated Press (Jan. 26, 2012)
New-home sales reached a seasonally adjusted annual pace of 307,000 in December — less than half the 700,000 pace that economists consider healthy for the sector.
In 2011, 302,000 new homes were sold nationwide, overtaking 2010’s 323,000 sales that had previously marked the worst year for sales on record.
The new-home sector continues to struggle to compete against discounted distressed properties that are plaguing many markets and have put downward pressure on home prices. Builders also say tighter lending standards are preventing some home buyers for qualifying for financing, and appraisals of new-homes are coming in lower on the agreed upon purchase price, causing more deals to fall through.
In December, the median sales price of a new-home was $210,300, according to the Commerce Department.
Turnaround Coming?
Despite the latest numbers from December, new-home sales rose in the overall final quarter of 2011. Home construction for single-family homes increased in the final three months of 2011, and an index measuring homebuilder sentiment showed builders are more positive about where the market is heading too."Although this [December] decline was unexpected, it does not change the story that housing has likely bottomed," Jennifer H. Lee, senior economist at BMO Capital Markets, told the Associated Press.
Source: “New Home Sales 2011: Worst Year on Record,” Associated Press (Jan. 26, 2012)
Condo buyers frustrated in hunt for FHA mortgages
Buying a condominium is getting trickier for anyone who wants to put down only 3.5 percent and have the government insure their mortgage.
The issue isn’t just the borrower’s financial wherewithal. It’s the building’s, and plenty of condos no longer get a thumbs-up from the Federal Housing Administration.
Since Feb. 1, 2010, condo buyers haven’t been able to secure unit-by-unit “spot” approval for FHA-backed mortgages if an entire building was not certified. Instead, the federal government set criteria to determine the financial viability of an entire building before deeming the project as FHA-approved, even if it had previously been certified. An approval lasts two years.
The number of rejected buildings is adding up, due to bad paperwork and bad balance sheets, as an increasing number of condo associations struggle with rentals, short sales and foreclosures. It is jeopardizing the plans of condo sellers who rely on the FHA’s stamp of approval as a marketing tool and condo buyers who either want or need an FHA-approved building.
The effects of those rejected buildings are likely to linger, particularly if more stringent downpayment requirements take effect for homebuyers, and could hamper any recovery of the housing market.
For the first nine months of 2011, the FHA’s share of the overall home purchase market was 37.4 percent nationally, but the share for condos would have been higher because FHA-insured loans are popular with condo purchasers, said Guy Cecala, CEO and publisher of Inside Mortgage Finance. “They have the most-used program out there,” he said.
Since Oct. 1, 38 percent of condominium communities that have gone through the certification process have been rejected by the FHA.
“It’s a critical year for buildings,” said David Hartwell, a Chicago attorney who represents condo and homeowner associations. “This is a whole new world that we live in now. I see more rejections than acceptances, and the reasons I see clients rejected aren’t quickly curable.”
For buyers like Kristy Fender, of Chicago, FHA certification is a must-have on her list, and not just because it lets Fender and her fiancé, Dan Harvey, make a smaller downpayment on a home purchase. She also figures that in approving buildings the FHA is doing the due diligence that she would otherwise have to do.
But the process has been much more complicated than Fender imagined, and she’s wasted a fair amount of her time. During the past few months that she’s looked at units in Chicago’s South Loop, she’s incorrectly been told that a unit can get spot approval and has looked at units that were listed as FHA approved, only to find out the certification had expired. Her real estate agent, Bette Bleeker of Prudential Rubloff, wound up routinely checking property listings against the FHA’s website of approved buildings.
“It’s been very frustrating,” Fender said. “There’s a lot of wishy-washy information out there.”
Fender and Harvey now plan to make an offer on a South Loop condo, but the offer will be contingent on the association getting the building certified for FHA financing. Bleeker has spoken with the building’s management company.
“If sellers were aware of it, they would certainly be more proactive with their management companies and not let their certification lapse,” Bleeker said. “There’s a whole education curve that needs to be done here, at the buyer level and the seller level.”
Many times, particularly in smaller buildings, it is a real estate agent or lender that informs an association that its certification has expired.
In addition to not knowing about the process, a lack of knowledge of the rules and the many gray areas within them is compounding issues for condo buildings. So, too, is not submitting all the required documentation. Many buildings are denied simply for missing or incomplete paperwork, which has led to the creation of a cottage industry of companies and attorneys that help shepherd associations through the process.
“It seems like there’s always something additional that (the FHA) wants,” said Steve Stenger, president of Condo Approval Professionals LLC. “Once it expires, FHA lending stops. Lenders can’t get case numbers; the FHA won’t insure them. That whole section of financing dries up.”
Among the specifics that the FHA looks at is that a building is 50 percent owner occupied, that no more than 10 percent of units are owned by one investor or entity, that no more than 15 percent of the units are 30 days past due on their monthly assessments, and that at least 10 percent of the association budget be set aside for capital expenditures and deferred maintenance. But some of those rules also come with a little wiggle room.
The FHA also looks at special assessments and pending litigation, two areas that can raise red flags.
“It’s really not that onerous,” said an FHA spokeswoman. “A lot of it is just basic information. We do have some that have been appropriately rejected because they are unstable.”
Financially, the 249-unit condo building at 1620 S. Michigan Ave. in Chicago is stable, said condo board President Jeanette Johnson. Nevertheless, she worries that the building won’t pass the test when its certification expires next month because of the high number of renters residing in units.
“I’m anticipating that the board will try to do the recertification, but I don’t know if we’ll qualify,” she said. “We’ll need to evaluate that before we spend any money. It’s definitely on the radar screen.”
If the building doesn’t qualify, Johnson said, it’s likely the board would look to change its declarations and bylaws, itself a difficult and lengthy process, to gradually reduce the number of renters allowed in the building.
The Community Association Institute believes the FHA’s requirements are having a “chilling” effect on the market, and the trade group has asked for flexibility in the guidelines.
“When it comes to the condo market, that is the gateway to affordable housing, and FHA should play a critical role in that,” said Andrew Fortin, a vice president at the trade group.
The FHA hopes to publish its condo certification rules in the Federal Register this year for public comment. Among the areas that may be open to additional flexibility is the requirement that no single entity can own more than 10 percent of a building’s units, a spokeswoman said.
But in the meantime, associations continue to grapple with the rules.
“There are new, more onerous guidelines to comply with, and there are definitely challenges,” said Jason Will, national condominium sales manager for Wells Fargo Home Mortgage. “The smaller or self-managed homeowners association might not be aware of the guidelines changes until they have a buyer. You actually have a real transaction in jeopardy.”
Some associations are deciding that the effort and the expenses tied to the application process, which can run into the thousands of dollars, aren’t worth the payoff and are letting their certifications lapse. In some instances, that position reflects a bias against what are thought to be lower-caliber buyers who need the FHA’s backing.
“It’s the owners that are trying to sell their units versus the owners that want to live in their units,” said Jonathan Bierman, a property manager at Forth Group, a condo association management company.
Many in the housing industry say that position is short-sighted, given consumer demand for FHA-backed mortgages.
“In an economy where it’s difficult to sell your condo, (FHA approval) is almost imperative,” said Kerry Bartell, a Buffalo Grove, Ill., attorney who represents homeowners associations. But, she noted, “We have a lot of clients that say they want to do FHA certification, and we say, ‘Don’t spend the money, because you’re not going to make it.’”
Source: the Chicago Tribune, Mary Ellen Podmolik. Distributed by McClatchy-Tribune News Service.
The issue isn’t just the borrower’s financial wherewithal. It’s the building’s, and plenty of condos no longer get a thumbs-up from the Federal Housing Administration.
Since Feb. 1, 2010, condo buyers haven’t been able to secure unit-by-unit “spot” approval for FHA-backed mortgages if an entire building was not certified. Instead, the federal government set criteria to determine the financial viability of an entire building before deeming the project as FHA-approved, even if it had previously been certified. An approval lasts two years.
The number of rejected buildings is adding up, due to bad paperwork and bad balance sheets, as an increasing number of condo associations struggle with rentals, short sales and foreclosures. It is jeopardizing the plans of condo sellers who rely on the FHA’s stamp of approval as a marketing tool and condo buyers who either want or need an FHA-approved building.
The effects of those rejected buildings are likely to linger, particularly if more stringent downpayment requirements take effect for homebuyers, and could hamper any recovery of the housing market.
For the first nine months of 2011, the FHA’s share of the overall home purchase market was 37.4 percent nationally, but the share for condos would have been higher because FHA-insured loans are popular with condo purchasers, said Guy Cecala, CEO and publisher of Inside Mortgage Finance. “They have the most-used program out there,” he said.
Since Oct. 1, 38 percent of condominium communities that have gone through the certification process have been rejected by the FHA.
“It’s a critical year for buildings,” said David Hartwell, a Chicago attorney who represents condo and homeowner associations. “This is a whole new world that we live in now. I see more rejections than acceptances, and the reasons I see clients rejected aren’t quickly curable.”
For buyers like Kristy Fender, of Chicago, FHA certification is a must-have on her list, and not just because it lets Fender and her fiancé, Dan Harvey, make a smaller downpayment on a home purchase. She also figures that in approving buildings the FHA is doing the due diligence that she would otherwise have to do.
But the process has been much more complicated than Fender imagined, and she’s wasted a fair amount of her time. During the past few months that she’s looked at units in Chicago’s South Loop, she’s incorrectly been told that a unit can get spot approval and has looked at units that were listed as FHA approved, only to find out the certification had expired. Her real estate agent, Bette Bleeker of Prudential Rubloff, wound up routinely checking property listings against the FHA’s website of approved buildings.
“It’s been very frustrating,” Fender said. “There’s a lot of wishy-washy information out there.”
Fender and Harvey now plan to make an offer on a South Loop condo, but the offer will be contingent on the association getting the building certified for FHA financing. Bleeker has spoken with the building’s management company.
“If sellers were aware of it, they would certainly be more proactive with their management companies and not let their certification lapse,” Bleeker said. “There’s a whole education curve that needs to be done here, at the buyer level and the seller level.”
Many times, particularly in smaller buildings, it is a real estate agent or lender that informs an association that its certification has expired.
In addition to not knowing about the process, a lack of knowledge of the rules and the many gray areas within them is compounding issues for condo buildings. So, too, is not submitting all the required documentation. Many buildings are denied simply for missing or incomplete paperwork, which has led to the creation of a cottage industry of companies and attorneys that help shepherd associations through the process.
“It seems like there’s always something additional that (the FHA) wants,” said Steve Stenger, president of Condo Approval Professionals LLC. “Once it expires, FHA lending stops. Lenders can’t get case numbers; the FHA won’t insure them. That whole section of financing dries up.”
Among the specifics that the FHA looks at is that a building is 50 percent owner occupied, that no more than 10 percent of units are owned by one investor or entity, that no more than 15 percent of the units are 30 days past due on their monthly assessments, and that at least 10 percent of the association budget be set aside for capital expenditures and deferred maintenance. But some of those rules also come with a little wiggle room.
The FHA also looks at special assessments and pending litigation, two areas that can raise red flags.
“It’s really not that onerous,” said an FHA spokeswoman. “A lot of it is just basic information. We do have some that have been appropriately rejected because they are unstable.”
Financially, the 249-unit condo building at 1620 S. Michigan Ave. in Chicago is stable, said condo board President Jeanette Johnson. Nevertheless, she worries that the building won’t pass the test when its certification expires next month because of the high number of renters residing in units.
“I’m anticipating that the board will try to do the recertification, but I don’t know if we’ll qualify,” she said. “We’ll need to evaluate that before we spend any money. It’s definitely on the radar screen.”
If the building doesn’t qualify, Johnson said, it’s likely the board would look to change its declarations and bylaws, itself a difficult and lengthy process, to gradually reduce the number of renters allowed in the building.
The Community Association Institute believes the FHA’s requirements are having a “chilling” effect on the market, and the trade group has asked for flexibility in the guidelines.
“When it comes to the condo market, that is the gateway to affordable housing, and FHA should play a critical role in that,” said Andrew Fortin, a vice president at the trade group.
The FHA hopes to publish its condo certification rules in the Federal Register this year for public comment. Among the areas that may be open to additional flexibility is the requirement that no single entity can own more than 10 percent of a building’s units, a spokeswoman said.
But in the meantime, associations continue to grapple with the rules.
“There are new, more onerous guidelines to comply with, and there are definitely challenges,” said Jason Will, national condominium sales manager for Wells Fargo Home Mortgage. “The smaller or self-managed homeowners association might not be aware of the guidelines changes until they have a buyer. You actually have a real transaction in jeopardy.”
Some associations are deciding that the effort and the expenses tied to the application process, which can run into the thousands of dollars, aren’t worth the payoff and are letting their certifications lapse. In some instances, that position reflects a bias against what are thought to be lower-caliber buyers who need the FHA’s backing.
“It’s the owners that are trying to sell their units versus the owners that want to live in their units,” said Jonathan Bierman, a property manager at Forth Group, a condo association management company.
Many in the housing industry say that position is short-sighted, given consumer demand for FHA-backed mortgages.
“In an economy where it’s difficult to sell your condo, (FHA approval) is almost imperative,” said Kerry Bartell, a Buffalo Grove, Ill., attorney who represents homeowners associations. But, she noted, “We have a lot of clients that say they want to do FHA certification, and we say, ‘Don’t spend the money, because you’re not going to make it.’”
Source: the Chicago Tribune, Mary Ellen Podmolik. Distributed by McClatchy-Tribune News Service.
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