FHA delays new condo rules

The Federal Housing Administration is delaying implementation of new rules for condo approvals until Dec. 7 and will reportedly pull back from some changes that critics said would have delayed or derailed many condominium sales.

In a June 12 letter to lenders, the Department of Housing and Urban Development announced FHA would implement a new approval process for condominium projects on Oct. 1.

As originally proposed, FHA would have been limited to guaranteeing loans on no more than 30 percent of units in any one condo project, instead of the 50 percent currently allowed.

HUD also said only condos in FHA-approved projects would be eligible for the government's mortgage insurance program, eliminating a "spot loan" approval option that's been in place since 1996 for approving individual loans in buildings that haven't been certified yet.

Even more problematic for lenders, HUD said all condo projects -- including 40,000 developments already on the FHA approved list -- would have to be re-certified every two years, meaning many projects eligible for FHA loans today would need to be reviewed before any more FHA loans could be approved in those buildings.

Lenders with direct endorsement authority from FHA would still have had the authority to certify condo projects as in compliance with FHA requirements themselves, but would risk losing their ability continue making FHA loans if too many loans in those projects went bad.

All condo projects, whether approved by FHA or direct endorsement lenders, would have had to meet minimum standards including a requirement that no more than 15 percent of units be behind on their association dues.

Lending and real estate industry groups complained about the sweeping nature of the changes. Three weeks before they were to take effect, FHA announced it was delaying implementation until Nov. 2. ...CONTINUED

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