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Federal Housing Administration’s (FHA) Condominium Guidelines
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Minnesota Community Living January/February 2012

Federal Housing Administration’s (FHA) Condominium Guidelines

From CAI Mortgage Matters

The ever-changing FHA Condominium Guidelines continued to create problems for many CAI members in 2011. Despite the challenges, CAI was able to work with FHA to amend some of the FHA lending criteria even as FHA released new policy that created new obstacles for condominium associations.

In June of 2011, FHA issued major revisions to the Condominium Guidelines, which, according to FHA, would address concerns raised by CAI. While the new guidelines added some flexibility on assessment delinquencies, commercial space and rental restrictions, they also imposed new and troubling criteria on fidelity insurance, project certifications and assessment delinquency calculations.

After the release of the new guidelines in June, CAI worked with our members to escalate our efforts to persuade FHA to engage in a more rational and transparent process in developing condominium guidelines. First, CAI sent a letter summarizing concerns about the new guidelines to the FHA commissioner. CAI noted that the requirements FHA imposed on fidelity insurance and project certifications were in conflict with many state laws and with the best practices of condominium associations. CAI also chided FHA for putting the burden of collecting assessments from bank-owned properties on association boards rather than on the banks that get a subsidy from FHA under the condominium loan program. CAI also filed an administrative challenge against the new guidelines, arguing that FHA failed to do minimal due diligence when drafting the new requirements. Then, working with our state Legislative Action Committees, we took our concerns directly to members of Congress in August. Additionally, when FHA announced during a public training session that it would be looking at the issue of deed-based transfer fees, CAI sent a strongly worded letter urging it to engage in outreach and research before taking any unilateral action.

The arrival of fall saw the return on the investment in our Congressional Outreach. First, FHA backed away from its costly and duplicative management company fidelity bonding mandate. This was followed a few weeks later by key members of Congress and the Senate sending letters critical of the FHA guidelines and the lack of transparency in their development. Through these efforts, CAI will continue to move FHA policy to more rational and fair criteria.

As year end approached, FHA’s financial position showed significant deterioration, with the organization well below its statutorily-mandated reserve requirements. There were whispers in Washington of a pending bailout, which would be bad news for potential condominium buyers as FHA continues to be the pre-eminent lender for condominium mortgages. This also will likely make CAI’s task for pushing for reforms of FHA lending criteria even more challenging. At the close of 2011, it looks as if 2012 will be yet another year filled with challenges on the mortgage front.

As part of our ongoing Mortgage Matters Program, CAI is working to protect homeowners in community associations and to ensure access to fair and affordable mortgage products for all current and potential community association residents. You can follow our work and share your thoughts at www.caimortgagematters.org.

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