Little advertised changes in the FHA’a rules regarding condominiums is wreaking havoc on condo sales in many communities throughout the country. Buyers, sellers and condominium associations have found themselves ineligible for FHA financing at a time when interest rates are near 4%. FHA mortgages have become a very common method for condominium unit financing in the past several years, and now comprise 40 percent of all purchase loans for condos in some markets. They are especially important for first-time and moderate-income buyers. The numbers illustrate the depth of the problems, according to FHA’s data, it insured 51,343 condo loans between October of last year and August of this year, a decrease of 41 percent from the 87,102 loans it insured during the same period in 2009 and 2010. Not even ten percent of the eligible condominium associations from the previous year gained the necessary certification for participation in the FHA process this year.
The new rules put board members into legal jeopardy by requiring them to sign certifications attesting that the condo documents comply with all local statutes and that they have no knowledge of situations that could cause any unit owner to become delinquent at some later date. A director found to have provided incorrect information faces a maximum penalty of $1 million in fines and 30 years’ imprisonment. Large numbers of condo boards could not resolve the legal issues in time to meet the deadlines for recertification. This type of Dilbertism is the last thing the real estate markets need at this time. The recovery of the real estate market is an integral part of any economic recovery. The FHA would serve the country better by streamlining the process and encouraging greater participation in the economic recovery.
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