FHA Squeezing Mortgage Financing For Condominiums Even With High Demand

Based on the new real estate industry estimates, the demand for condominiums have increased in most urban areas across the country. However, a key federal agency is squeezing mortgage financing for entry-level condo buyers.

The list prices of condominiums have increased faster compared to single-family detached homes located in the same area. Sales of condominiums across the nation has steadily taken over the traditional homes’ market share as different homeowners downsize as part of their plans to live closer to their workplace and to the city’s top attractions.

However, financing barriers created by the federal government has made it more difficult for millennials and other first-time buyers to purchase entry-level condos. Just last month, the White House indicated that they want the government to loosen up on mortgage credit availability for middle-income Americans. However, the number of condominium projects continues to be severely restricted by the Federal Housing Administration. Aside from this, such restrictions also make it impossible for a lot of senior citizens who are condo owners to get reverse mortgages.

But even with such problems, Trulia reports that the asking price prices in the 20 largest condo markets continue to outrun the increasing prices of single-family homes. Plus, the condo’s selling prices remain to be below the prices for detached homes on average nationwide, making them a more affordable housing option.

According to Lawrence Yun, the Chief Economist for the National Association of Realtors, the market share of condos has remarkably increased from 8 percent to 11 percent and 12 percent. In fact, in some urban markets, the condo shares are significantly high. For instance, in Los Angeles, where condos account to 27% of the home resales, while 44.9% in Miami based on the data gathered by CoreLogic’s DataQuick.

However, a lot of housing experts believe that the main problem in the booming condo sector is the unnecessary blockage of entry points at the lower price ranges. The FHA who has always been the source of mortgage money for most first-time homebuyers will consider insuring mortgages in less than 7 percent of the estimated 150,000-plus condominium developments across the country.

FHA has also stopped approving spot loans in condominium projects that haven’t applied for or got a special participation, a process considered by the condo homeowner association boards as stressful and usually leads to rejection.

David Stevens, who was the FHA commissioner in 2010 when the so-called spot loans were banned now heads the Mortgage Bankers Association. He claims that it’s the right time to bring those back along with reasonable restrictions since most young first-time homebuyers use the FHA as their sole source of low-down-payment financing. Although FHA has dealt with a lot of condo foreclosure problems caused by the housing bust, Steven believes that ”that doesn’t mean you keep these restrictions on” when the crisis has abated, as at present.

Eric Boucher, chief operating officer of ReadySetLoan, a Connecticut based-national condo consulting firm said that the ban on spot loans have a significant impact on senior citizens who view reverse mortgage as an additional income. In a condo association meeting he recently attended with owners in their 80s, a lot of them described their inability to get a reverse mortgage solely because of FHA’s policy.

The FHA remains to be silent whether they have plans to loosen their certification restriction and allow spot loans to buyers and owners in uncertified developments that can meet the financial stability criteria. However, different sources claim that the agency is feeling the pressure from the real estate industry, the mortgage lobbies, and the Capitol Hill and that they are now planning a major condo proposal for 2015 that aims to bring back FHA financing to a lot of buyers and existing condo unit owners.

Sales of Existing Homes Reached Highest Pace This Year

According to the National Association of Realtors, existing homes currently sell at their highest annual pace this year at 5.17 million. That’s an increase from August with 5.05 million. However, this is still below the home sales from last year.

Such sales comprised of single-family houses, townhouses, condominiums and co-ops. Law Yun, NAR Chief Economist claim that such increase in September can be because of “low interest rates and price gains holding steady.”

“Traditional buyers are entering a less competitive market with fewer investors searching for available homes, but may also face a slight decline in choices due to the fact that inventory generally falls heading into the winter,” he added. Last month, the median home price was $209,700, which is 5.6 percent up from a year earlier.

Mortgage rates has also risen slightly last month, however, Yun believes that stock market volatility “is causing investors to seek safer bets, which will likely keep interest rates in upcoming weeks hovering near or below where they are now.”