Financial Issues Property Values, Loans at Risk as HUD TIghtens Guidelines

New lending guidelines from HUD mean that FHA loan requirements will be significantly tightened for condominium sales.

The new requirements could have a profoundly negative effect on the ability to sell or buy a condominium unit that requires FHA financing. It’s estimated that the vast majority the condominiums in New England will not meet the new guidelines, and unless they move quickly to comply they could see their property values directly impacted.

The new guidelines represent a significant departure from the mortgage industry’s “glory” days of 2005, when practically anyone who wanted to own a home could. At that time, FHA loans had approximately a 5% market share.

Those days are long gone as the sub-primemortgage market no longer exists, and Fannie Mae and Freddie Mac underwriting guidelines have tightened dramatically; these underwriting guidelines are even stricter when financing a condominium than when financing a detached, single-family house.

Today, FHA’s market share is close to 40%, with over 60% of those being first-time homebuyers. These loans still allow a buyer to put 3.5% down, regardless of their intended purchase being a condominium. For a conventional Fannie Mae- or Freddie Mac-conforming loan, however, a buyer must put down 15% of the purchase price in many areas. As we in the industry see Fannie Mae and Freddie Mac continue to adjust their underwriting guidelines, we believe that FHA’s market share will continue to grow.

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3 Comments

  • This was a great article that every realtor, condo association and real estate investor should read! Talk about a blueprint to be prepared! This author did a great job and really knows his stuff.
  • I have a unit owner that owes two assessments one was due Aug 2008 and the second Aug 2009 and owes the last 4 months condo feees. The issue is not financial for the owner it is a matter that they pay when they are ready and choose what they will pay. This is a historic problem going back many many years prior to my occupancy and none of the other owners will agree we should impose late fees and I don't believe it would matter or get this unit to pay sooner. I think what I need to do is send any outstanding amounts over 60 days to an Attny for collection. I do currently send a balance statement monthly to the unit owner (have not sent a reg. letter yet) The unit owner has no mortgage and has stated in the past they don't care if a lien is put on the unit since they have no plans to sell. I would like to follow through and go as far as I need since this is a second home for the unit and not a matter of displacing anyone. It is quite frustrating trying to pay the monthly bills in a small complex when you have one problem payer/ bully while trying not to deplete the emergency acct to cover this persons fees. What would the process be for collecton?
  • CondoInsurance.com on Monday, March 28, 2011 5:36 PM
    Conventional loans are quickly becoming the only resource available to buyers who are looking to buy a condo. There are a few properties however that offer FHA approved financing but they are few and far inbetween.