FHA condo legislation becomes law. Now what?
FHA condo legislation becomes law. Now what?
August 15, 2016 — If condos are a large part of your business, you are no doubt anxious for the Housing Opportunity Through Modernization Act (H.R. 3700), signed into law July 29, to take effect. Among other things, this new law requires the Federal Housing Administration (FHA) to relax its financing regulations so more buyers can get FHA financing for condo purchases.
Fewer than 150 of about 23,000 condo projects in Florida are currently certified for FHA loans, according to the Department of Housing and Urban Development (HUD). That's likely to change as the new regulations are implemented — a process that probably will begin in 2017.
"The National Association of Realtors (NAR) will be working with regulators to make sure they pass these new regulations quickly. HUD will have to put out a public notice to implement the condo and federal assistance housing provisions of H.R. 3700, and we hope they do that quickly," says Megan Booth, senior policy representative at NAR.
HUD has 90 days to issue its proposed rule for three provisions of the law dealing with owner-occupancy, transfer fees and commercial space. A public comment period follows, and that could take as much as three months. The final rule for each provision will specify the implementation period.
Owner-occupancy ratios: Currently, 50 percent of condo associations must be owner-occupied for a community to be FHA certified. That will change to 35 percent unless FHA can provide justification for a higher percentage.
Transfer fees: H.R. 3700 forces FHA to stop rejecting condo communities that charge transfer fees when units are sold. Like Fannie Mae and Freddie Mac, FHA will back loans in communities that charge transfer fees to pay for community services such as pool upkeep, trash collection and landscaping.
Flexibility on the amount of commercial space in a condo community. The legislation gives lenders more flexibility in approving FHA condo loans in these kinds of mixed-used communities.
Condo recertifications: For a condo community to be approved to offer FHA financing, it has to be certified and then recertified every two years. This is both time-consuming and expensive. Approval takes about six months. So, a community is going through the recertification process every 18 months.H.R. 3700 requires HUD to make the recertification process substantially easier than the certification process. The plan is that communities would be updating documents rather than resubmitting documents. H.R. 3700 provides no timeline for implementation of this provision.
In addition to condo finance reform, the legislation also makes changes to the Section 8 voucher program for very low-income renters. It streamlines the rental process, making it easier for landlords to take in tenants with Section 8 vouchers, and for these low-income tenants to locate available units. It's unclear when these changes will take effect.
The law also speeds up processing of Rural Housing Service single-family home loans effective immediately.
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