Congress Passes Law Requiring FHA to Loosen Project Approval Requirements
In late July 2016, President Obama signed H.R. 3700, the Housing Opportunity through Modernization Act. This legislation alters the process utilized by the Federal Housing Administration (FHA) in determining if condominium unit owners qualify for a mortgage with FHA insurance. FHA-insured mortgages are used by many first-time homebuyers to purchase homes, including condominium units.
In 2009, FHA overhauled its condominium project qualification rules which rendered many condominium projects ineligible for FHA approval, thus decreasing the number of condominiums qualified for FHA-insured mortgages. This new legislation is expected to expand the number of condominiums in which borrowers can use an FHA-insured mortgage to purchase a home.
Here is a summary of the legislation:
1. The law amends the National Housing Act to require the FHA to modify its certification requirements for condominium mortgage insurance to make recertifications substantially less burdensome than original certifications. The FHA must consider lengthening the time between certifications for approved properties and allowing information to be updated rather than resubmitted.
2. A HUD field office must make decisions regarding exemptions to current FHA commercial space requirements and must consider factors relating to the economy of the locality in which the project is located.
3. FHA must apply to FHA condominium mortgage insurance the existing standards of the Federal Housing Finance Agency (FHFA) relating to encumbrances under private transfer fee covenants to the same extent and in the same manner as those standards apply to mortgage investments by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). If the FHFA changes its standards after enactment of this bill, the FHA must adopt the changes or disregard them with an explanatory notice within 90 days.
4. FHA must issue guidance regarding the percentage of units that must be occupied by the owners (or sold to owners intending to meet such occupancy requirements) in order for a condominium to be eligible for FHA mortgage insurance. If the guidance is not issued within 90 days of enactment of the bill: (1) at least 35% of all family units must be occupied by the owners or sold to owners who intend to meet the occupancy requirement, and (2) FHA may increase the requirement for a project on a project-by-project (or regional) basis after considering factors relating to the economy of the locality in which the project is located.
FHA will now undertake its implementation of the law, which will involve changes to FHA regulations and existing agency guidelines. Keep an eye on this Journal for details as they emerge.