WASHINGTON – When the Federal Housing Administration recently announced a reduction in its 50% owner-occupancy requirement for FHA-approved condominium developments, the National Association of Realtors called it a "big win."
The reduction, announced and effective on Oct. 26, allows condominium buildings with a minimum of 35% owner-occupants to become FHA-approved so the owners could qualify for FHA-insured mortgages.
But on further study, officials with the Realtor group realized that the FHA included reporting requirements they didn't expect. And it would be difficult for many condominium associations to meet those requirements. So the occupancy requirement would likely remain at 50% in many cases.
"There was always a chance that the 50% owner-occupancy requirement would stay in place, so we were pleased to see FHA finally take a big step in the right direction," NAR President Bill Brown said by email on Thursday. "That said, the requirements for a building to qualify for that 35% threshold are strict, and we'll be making the case that the 35% threshold should apply equally to all buildings otherwise eligible for FHA approval."
The FHA has also proposed a rule that would give the agency the flexibility to reset the owner-occupancy requirement at anywhere from 25% to 75% so it can be responsive to future market changes. The comment period on this proposal ends Nov. 28.
The Realtor group will file a comment letter and seek rule changes so more condominiums can qualify for the 35% owner-occupancy requirement.
But the FHA seems wed to the strings it attached to its 50% requirement.
"FHA has determined that for most projects, the existing owner-occupancy requirements are necessary to maintain the stability of the Mutual Mortgage Insurance Fund," the agency said in a letter last month to mortgage lenders.
"To lower the owner-occupancy percentage to 35% and protect the fund, condominium associations will be required to show they have 'higher reserves, a low percentage of association dues in arrears, and evidence of long-term financial stability,' " the letter said.
This means no more than 10% of condo owners can be more than 60 days past due on their association fee payments. In addition, a condominium association must have adequate reserves for capital expenditures and deferred maintenance along with three years of acceptable financial documents.
If FHA officials stand their ground, the Realtors can always appeal to Congress for relief.
The Realtor group supported the legislation last summer that directed housing regulators to ease the condominium owner-occupancy and building recertification requirements. The bill, HR 3700, also directed them to allow more commercial space in condo buildings.
The Housing Opportunity Through Modernization bill, originally sponsored by Reps. Blaine Luetkemeyer, R-Mo., and Emanuel Cleaver, D-Mo., passed the House by a 427-0 vote. The Senate approved the bill by unanimous consent.