Vail Daily column: Changes could help local homebuyers
The Mortgage Guy
While Congress seems unable to agree that the sky is blue or sunsets can be beautiful, they did actually agree on one thing lately, and that is that the Federal Housing Administration has made buying a condominium just too dang hard.
Federal Housing Administration loans are intended for low income families with limited down payments. Naturally, such people are looking for lower-priced housing, and in Eagle County, that means a condominium. Federal Housing Administration loans typically require a 3.5 percent down payment, and have a higher tolerance when it comes to debt-to-income, making it easier to qualify.
For decades, Federal Housing Administration was a major source of funding for condominiums for most of the country. But the problem was Federal Housing Administration had fairly stringent requirements for condo associations to meet and they kept getting harder. The homeowners association had to be more than 50 percent owner-occupied, have little, if any, commercial space associated with them and the homeowners association had to endure a expensive and time consuming review process as often as every two years. The finances, budget and reserves had to meet Federal Housing Administration requirements. The number of those owner delinquent on dues could not exceed 10 percent in many cases and transfer fees were not allowed.
As a result, thousands of condo associations across the country decided the hassle was not worth it and let their Federal Housing Administration approvals go, often not realizing the consequences of excluding a large number of potential buyers from considering their neighborhood as a choice. Federal Housing Administration’s portfolio of new condo loans has shrunk by as much as 70 percent in the past few years.
Some viewed this as a form of economic discrimination, as well by boards wishing that new neighbors might be of a better economic class than the down payment and income-challenged who would be more likely to use an FHA loan.
In Eagle County, there have sporadically been a few associations that qualified, rarely more than one or two at any given time. This has posed a considerable hurdle to many homebuyers. This is because many homeowners associations have less than 50 percent owner-occupancy, or have short-term rental activity allowed within their homeowners associations.
But in what is a rare event in Washington these days, Democrats and Republicans agreed that the Federal Housing Administration has gone too far and made it too difficult for homebuyers to get financing on condos. In a nearly unheard of show of unity the House passed a bill ordering the Federal Housing Administration to reform its policies unanimously. The bill then easily passed the Senate, unanimously. For one bill to clear both houses without a dissenting vote, or someone trying sneak in self serving amendments unrelated to the Federal Housing Administration is virtually unheard of and was one of the strongest statements made in recent memory.
The bill did not mandate to micromanage how FHA should change, which is also rare and in general, a good approach; rather, it ordered the agency to streamline requirements for condo project approval, and to take into account what works locally, such as allowing mixed use of commercial and residential in the same building.
Another change ordered specifically was to reduce the owner occupancy requirement from 50 percent to 35 percent, which could open doors to some homeowners associations in Eagle County being eligible. There was no discussion of approving complexes that allow short-term rental activity in the legislation, but it’s possible the agency might consider softening up on that issue. Transfer fees, if for the benefit of the homeowners association community are now allowed. Government transfer fees, such as local transfer taxes have always been allowed, but fees such as Eagle Ranch’s transfer fee of 1 percent were not allowed in the past as that went to the homeowners association.
FHA is expected to release new rules sometime early next year, and hopefully this will provide one more tool for local families to purchase homes.
Chris Neuswanger is a mortgage loan originator with Macro Financial Group in Avon, and may be reached at 970-748-0342. He welcomes mortgage related inquiries from borrowers. His blog and web site is http://www.mtnmortgageguy.com