The Federal Housing Administration (FHA) has announced its plans to disqualify condominium associations from FHA financing if the association charges a deed-based transfer fee at time of sale. This would put FHA at odds with the Federal Housing Finance Agency (FHFA), which earlier this year determined that such fees benefit community associations and do not impact the sale of community association properties. It marks yet another unilateral action by FHA, without public notice or input that will have a detrimental effect on the condominium market. Worse, FHA conducted no formal release of this pending requirement, but rather mentioned it as part of a training session on the new requirements imposed by FHA in its June 30 Mortgagee Letter.
Our members may recall the fierce, and successful, battle waged by CAI against FHFA on community association transfer fees earlier this year. In late 2010, FHFA proposed a draft regulation which would have cut off all federally backed mortgages to community associations with deed-based transfer fees. A CAI national survey found that forty-nine percent of all community associations have a deed-based transfer fee. These community transfer fees are levied at the time of sale to fund reserves, capital projects or operations. The fees are typically less than $500 and are calculated as a percentage of sale price, a fixed fee or a multiple of monthly assessments. The challenge is that such fees are incorporated into the deed restrictions of the community association which typically requires a two-thirds majority of all property owners to change. FHFA sought input from the public at large and received more than 4,000 comments on their proposal. Based on the information received, FHFA revised their regulation to allow community association levied fees.
FHA has indicated that they will issue a Mortgagee Letter later this year which would disqualify condominium associations from FHA backed mortgages if they had a deed-based transfer fee in place. Unlike FHFA, FHA does not intend to solicit public input on this proposal nor do they find the information gathered by the FHFA on the same topic to be relevant to their decision. Unfortunately, this is business as usual for FHA which continues to issue requirements for its condominium mortgage insurance program without the benefit of input from the public at large. For those who have worked to get FHA approval, this has resulted in FHA requirements that have proven confusing and problematic for associations. In a statement submitted to the House Financial Services Committee on an FHA hearing, CAI noted that FHA’s lack of stakeholder input “has resulted in underwriting criteria for condominium associations that do not comport with common association business operations, state law or common sense.”
In August, CAI members from key state legislative action committees met with members of the House Financial Services Committee to let them know the problems FHA is creating in the condominium marketplace by setting qualification criteria for condominium associations that conflict with association operations, state law or simply do not make rational sense. CAI continues to expand our grassroots efforts to force FHA to engage in a more transparent process in developing criteria for condominium mortgages. As FHA currently accounts for one in three condominium loans, getting the rules right is key to restoring confidence to the marketplace. Despite our progress on a variety of mortgage issues, FHA continues to be a needless source of confusion and frustration for condominium associations.
As part of our ongoing Mortgage Matters program, CAI is working to protect homeowners in community associations and to ensure access to fair and affordable mortgage products for all current and potential community association residents. You can follow our work and share your thoughts at http://www.caimortgagematters.org/. CAI will continue to monitor and participate in shaping the development of the FHA’s condominium underwriting guidelines to ensure that the perspective of community associations is heard. If you have any questions about the FHA’s underwriting criteria and how it could affect your community, e-mail government@caionline.org with FHA Mortgage Insurance Requirements in the subject line.
