For many condominium buyers and sellers across the country, the Obama administration delivered what seemed like encouraging news last week: The Federal Housing Administration, once the primary source of mortgage financing for moderate-income and first-time condo buyers, is coming back, big time.
But the real story was more complex.
Under new reform proposals, FHA plans to loosen some of its controversial and strict eligibility rules that have caused condo associations nationwide to abandon the program. It also wants to revive so-called “spot loans” — mortgages for individual units in condo buildings that haven’t received blanket certifications from the agency. That change alone could open up low-down-payment financing for millennials, minorities and others in many of the estimated 150,000-plus condo projects in the United States. The Community Associations Institute estimates that just 14,000 condo projects nationwide — less than 10 percent of the total — are now certified for FHA-insured mortgages.
The proposals would also throw a lifeline to senior owners of condo units who need a reverse mortgage to supplement their retirement income. Since FHA’s reverse mortgage program accounts for an estimated 90 percent-plus of all reverse mortgages, the recent inability of seniors living in uncertified condo buildings to obtain reverse mortgages has effectively denied them funds they’d otherwise be able to access.
To real estate professionals such as Norva Madden, an agent with Long & Foster Real Estate in the Maryland suburbs of Washington D.C., reopening FHA financing to more condo projects — after nearly eight years of rules that scared them away — can’t come soon enough. She’s had multiple, well-qualified buyers eager to buy condo units in the affordable $155,000-$160,000 range walk out the door when they discovered they couldn’t use FHA financing because the building where they hoped to live had left the federal program. Rather than selling quickly for close to list prices, units in noncertified buildings often languish on the market for 90 to 180 days, she said, and then sell below the asking price. In one recent case, an elderly owner was forced to sell her two-bedroom condo to a low-ball bidder for $13,000 less than she could have otherwise obtained from FHA-qualified buyers.
