Ken Harney’s Beating On FHA Again
This past weekend, I was mentioned in a Ken Harney article. He called me two weeks ago to revisit a topic that we had discussed in April: the possible return of FHA Spot Loans for Condominiums.
While I am honored that he chose to cite me in the article, I don’t believe that the paragraph is entirely accurate. The story about the 80-year old couple is true. They cannot obtain a reverse mortgage primarily because the association is not contributing the statutory 10% to the reserve account annually. This renders the condominium ineligible for an FHA condominium project approval.
However, it is important to make two key points about this:
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Conventional loan programs of Fannie Mae also require that an annual 10% contribution to the reserve account is made. So, FHA is not alone in this requirement.
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According to reserve studies that I have reviewed, a 10% contribution to reserves is lower (sometimes far lower) than is typically recommended by the reserve analyst. Thus, this requirement is not excessive.
Fortunately, for this couple, the Board and the Association are interested in obtaining an FHA Condo Approval. This is why I was asked to attend the meeting. They wanted to know what they needed to do in order to qualify for an approval as quickly as possible.
This has not been the case with many other associations with whom I have spoken which I believe is the real problem behind why less than 7% of condominiums are approved with FHA, nationally (according to Harney’s article).
Many associations aren’t interested in obtaining an FHA Condo Approval because they believe it will let in a certain segment of the population. This is based on myths that FHA buyers are low-income, government-subsidized, bad-credit borrowers -- none of which is true. FHA buyers have to qualify for the loans on their own merit and are not provided subsidies to purchase from FHA.
What they don’t know is that FHA has better performance numbers than those of conventional/Fannie Mae borrowers.
I heard it many times at the CAI New Jersey Expo over the weekend. They saw the sign “FHA/VA Condo Approval Specialists” and immediately said “FHA? No thank you.” Thankfully, I had my data sheet on FHA loan performance to at least educate them a little bit. It’s frustrating to me that Board members are shutting out an estimated 40% of the buyer pool based on inaccurate myths.
Another point regarding Harney’s comment about the lack of FHA-approved condos is that many of the nation’s 150,000 condominiums wouldn’t benefit from an FHA approval. This is simply because the unit values are far above the maximum mortgage loan limits set by FHA.
Does it make sense for a condominium association to get approved with FHA when its unit values are $700,000 when the max FHA loan limit is $300,000? It may not impact the sales of the units at all.
I think that if Harney wishes to speak about the lack of condominiums on the FHA Approved Condominiums List, he should examine the reluctance of associations to obtain the approval. Being a talented writer, he could certainly help to dispel the myths of FHA borrowers better than any attempt by this author.
Top Photo Credit: (c) Can Stock Photo / BrianGuest
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