Monthly Archives: May 2016
The FHA announced that it is indeed changing some of its rules around condo financing, lowering its owner-occupancy requirements on certain condo developments.
Under the FHA’s current rules, approved condominium developments must have a minimum of 50% of the units occupied by owners.
The new rules, which go into effect immediately, would lower this requirement to 35% for existing condo developments provided the project meets “certain conditions,” the FHA said.
“While having too few owner-occupants can detract from the viability of a project, requiring too many can harm its marketability,” the FHA said in a statement. “It is FHA’s position that owner-occupants serve to stabilize the financial viability of the projects and are less likely to default on their obligations to homeowner associations than non-owner occupants.”
According to the FHA, for some condominium projects, the existing owner-occupancy requirement is “necessary” to maintain the stability of FHA’s Mutual Mortgage Insurance Fund.
But the FHA said that it in certain instances, it now believes that it would be possible to protect the MMIF while allowing a lower percentage of owner-occupants.
“(The Department of Housing and Urban Development’s) experience shows that higher reserves, a low percentage of association dues in arrears, and evidence of long-term financial stability allow for a lower owner-occupancy percentage without undue risk to the MMIF,” the FHA said.
To be eligible for the lower owner-occupancy rules, the condo development must be more than 12 months old. Additionally, the requirements for the lower owner-occupancy rules are:
- Applications must be submitted for processing and review under the HUD Review and Approval Process (HRAP) option
- Financial documents must provide for funding of replacement reserves for capital expenditures and deferred maintenance in an account representing at least 20% of the condo development’s budget
- No more than 10% of the total units can be in arrears (more than 60 days past due) on their condominium association fee payments
- Three years of acceptable financial documents must be provided
According to the FHA, for condo projects that are proposed, under construction, which includes existing projects that are less than 12 months old, or “gut rehab” conversions, the FHA will maintain its current owner-occupancy percentage of 30%.
NAR President Tom Salomone welcomed the changes, but said that NAR hopes the FHA will go even further with these new rules.
“NAR has been fighting for changes to FHA’s condominium rules for years, and the mortgagee letter announced will bring some much needed relief to the market,” Salomone said.
“Condominiums will have a much easier time getting certified by FHA, and Realtors will have more options for clients looking to purchase a condo with an FHA mortgage,” Salomone continued. “This is a big win for NAR, and while we believe all condominiums should have the rules applied to them equally, we also believe FHA has heard the concerns of Realtors and is moving in the right direction.”
“One Mod is a universal framework designed to provide the customer meaningful payment relief early in delinquency,” JPMorgan Chase Product Executive Erik Schmitt told HousingWire. “This is achieved through the creation of a simplified customer experience and a product designed to provide meaningful payment relief, which is the key driver of re-performance.”
“Additionally, the product is durable, in that it is designed to provide customers with assistance across a broad range of economic environments,” Schmitt said.
One Mod will be an improvement from HAMP as experts analyze what worked and what didn’t.
“We’re taking the lessons that we learned from HAMP and finding ways to only require the specific documentation used to drive payment reduction,” Alex McGillis of Quicken Loans told HousingWire. “The data from HAMP shows that payment reduction is the biggest driver in reducing re-defaults.”
There will be several changes to the new program as the industry shifts towards what Yvette Gilmore, Freddie Mac vice president of servicing performance management, calls a non-crisis program.
One of the major shifts includes an increase in the program’s availability.
“The focus of One Mod is to maximize the number of homes saved, which is achieved through increasing program accessibility and providing more sustainable solutions to prevent default,” Schmitt said.
Also, the proposed program will differ when it comes to the regulation that controls it. At the session, the MBA asked Laurie Maggiano, the Consumer Financial Protection Bureau program manager, what the industry can expect when it comes to new regulation for loan modification.
“We just published a 900-page rule, what else do you want?” Maggiano joked. Then, on a more serious note, she added, “Because the rule doesn’t say what a modification should look like, and I don’t expect to go there, I don’t expect any more regulation.”
McGillis summed up the goals for the new program:
“Everyone should have the ability or chance to save their home no matter what they’re going through,” he said at the session.