FHA Approval Flexibility Could Ease Foreclosures

The housing market is recovering in a slow but fairly steady rate, though there are measures that can be taken to reduce the foreclosure rate more rapidly and encourage more buyers to invest in new homes. One way would be to somehow lower the legislative load that is currently present in some parts of the market.

The Federal Housing Administration or FHA is the official entity that providers insurance on mortgage loans for lenders. As such it has a lot of influence on the market, and some recent as well not so recent changes have greatly affected some homeowners and communities.

FHA Mortgagee Letter 2011-22 for example made several temporary policy changes from previous years regarding the approval process for condo complexes permanent:

1. The FHA will not provide insurance for mortgages if more than 30 percent of the homes in a condo complex are already insured. This represents a 20 percent decrease from the previous 50 percent.
2. At least 50 percent of the units in such a complex most be sold before the FHA will back a mortgage, compared to 30 percent prior to the changes.

Other polices, such as the 10 percent investor ownership and 15 percent past-due (by 30 days) units’ limits have not been changed.

Back in 2010, another policy change regarding condo buildings in the state of New York also got some attention from critics. The new regulation dictates that a condo complex must put aside 10 percent of its yearly budget for its reserve fund – a percentage that some developments may find lower than their existing rate, while others may find it much less affordable.

There is a way community associations can lighten the burden in case of the second scenario. The FHA permits such a community to commission a reserve study by a qualified consultant who will set an estimate of the maintenance costs in the few following years.  

On a national scale, new pending legislation may have an impact of both condo- and house-owners. The National Association of Realtors has expressed its objection against the Dodd-Frank Act that calls for a 20 percent down payment on every house purchase. Based on some studies, the act may affect up to a third of the buyers out there, should it receive approval.