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.

Reducing Risks Related To Reverse Mortgage

Reverse mortgage has been a common option by individuals 62 years and older, cash poor but still wants to live in their house. And if you’re one of these individuals applying for a reverse mortgage soon, you have to know that the regulations have become tighter. This is actually a good thing according to most financial advisers.

Why Was The Program Changed?

The program was basically changed because like other types of loans, reverse mortgage also has its risks. A lot of the seniors lost their homes to foreclosure for two common reasons: first, the borrow no longer uses the home as its principal residence and second, the borrower failed to meet the mortgage’s obligations.

The first reason usually occurs when only one spouse was listed on the deed and that person was moved into a nursing home due to illness or died. On the other hand, the second reason takes places because the borrower got too much equity from their property, spent all the cash, weren’t able to maintain the property, or weren’t able to pay up the insurance, which are all obligations of the borrowers when they get a reverse mortgage.

But aside from these two reasons, Consumer Financial Protection Bureau Director Richard Cordray said that their agency found out that senior citizens don’t completely understand the loan terms exacerbated by false and deceptive advertisements and mailings.

“We will work with our partners at the federal, state and local level to root out these kinds of scams,” Cordray said.

How To Lessen Risks On Reverse Mortgage?

According to The Wall Street Journal’s Sunday edition report made by Tom Lauricella, the federal government has tightened the guidelines on reverse mortgage so borrowers can avoid committing such mistakes thus, decreasing the risks related tot his.

These changes are all positive,” Encore contributor and the director of the Center for Retirement Research at Boston College Alicia Munnell said.

The new guidelines include the following:

• The Department of Housing and Urban Development in 2013 altered the rules setting a limit on most loans, especially during the first year, to 60% of the available equity in the home based on the FHA standards. Borrowers are allowed to use the remaining equity in their home in subsequent years.
• Lenders are required to assess first the capability of the borrowers to meet their financial obligations on the property. Depending on the assessment, especially if the lender sees you a risk, the homeowner could be required to set aside money from the proceeds to pay up for the property taxes and insurance.

Lori Trawinski, a policy adviser who specializes in reverse mortgages at AARP said, “The important thing about these mortgages that people really need to remember is that they are loans, and as with any loans they come with a set of obligations.”