September 2018 Newsletter

Federal Housing Finance Reform
– Mortgage and Refinance Options
By: Lisa Magill, Esq.
In the past many association leaders viewed FHA or
federal financing options negatively. Even though the
real estate market in South Florida is hot right now, several
analysts predict a slow-down in the not too distant future.
Moreover, it’s probably only a matter of time before this bull
market cannot sustain itself. With that being said, a quick
search of the HUD website shows that while 428 Broward
condominiums were approved in the past, the vast majority of
those approvals are expired.
The biggest sticking point? FHA does not approve of
association conducted background or credit checks or any
other tenant screening. The screening may be required by
the owner-landlord, but not the association. However, in
June of this year HUD Secretary Ben Carlson announced
plans to release final rules easing restrictions on FHA loans
for condominiums as soon as September, 2018. A letter
directed to HUD, signed by more than 50 U.S. Senators
urged HUD to simplify and streamline requirements and
said:
FHA’s current condominium rules place significant
restrictions on the purchase and sale of condominiums,
even though they are often the most affordable homeownership
option for first-time buyers, small families, urban
and older Americans.
Of course, the condominium project must meet certain
guidelines in order to qualify for FHA/federal financing approval.
Those are largely:
• No more than 50% of property can be used as commercial
space
• No more than 15% of units can be arrear in their assessments
more than 60 days
• Any investor/entity (single or multiple owner entities)
may own up to 50% of the total units IF at least 50%
of the total units in the complex are owner occupied as
principal residences. (The previous limit was 10%)
• If more than 50% are rentals, the process is more difficult.
Existing condo complexes with at least 3 years of very
stable finances, and low delinquency rates may qualify
for FHA financing with as little as 35% owner occupancy.
• 10% of budgeted income must be dedicated to reserves
and while there is some flexibility, the association
should have enough available funds to cover all insurance
deductibles.
• Insurance coverage must comply with guidelines.
• The association must allow some form of leasing but
leasing caps are okay and transient leasing of units
(defined as less than 30 days) must be prohibited.
For current owners, the Home Affordable Refinance
Program (HARP) will remain open through the end of this
year. According to federal data, there are 37,000 borrowers
in Florida that could benefit from the program. Persons
seeking to refinance meet the basic HARP eligibility requirements
which include having a remaining balance of
$50,000 or more on their mortgage, a remaining term on
their loan of greater than 10 years, and a mortgage interest
rate that is at least 1.5 percent higher than current market
rates. If you fit this description, you could save $2,290
annually by refinancing your mortgage through HARP. Go
to HARP.gov for more information.
Regardless of whether you think the seller’s market will
remain hot, having your community approved as a FHA/
Fannie Mae eligible project is one way to increase the
marketability of units in your condominium.
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