HUD issued Mortgagee Letter 2009-19 with important changes to the guidelines for Condo financing.  The guidelines were originally scheduled to take effect on October 1^st, but are now scheduled to take effect November 2^nd.   One of the major changes has to do with the Approved Condo list; Currently, FHA has a list of Approved Condo’s,   if a project is on the approved list then FHA financing is allowed, if the project met the other requirements.  Spot Approval provided a way to close FHA loans in projects that were not approved; spot approval will no longer be allowed.   According to the new guidelines, any project not approved in the past 12 months will be taken off the FHA Condo Approval list and new projects currently approved will have 12 months to re-certify, so basically the entire list of approved condo’s is being redone.  

Here are some more proposed guidelines to be mindful of:

• 4+ units can have 30% maximum FHA financed units, (which might change to 50%).
• No more than 15 % of the units can be in arrears of the condo association fee.
• No more than 10% of the units can be owned by a single investor.
• 2 and 3 units are now allowed, but HUD will only insure one of the units.
• Right of First refusal considered on a case by case basis, (as long as you can prove it is not discriminatory).

This Week’s Real Estate Insight:

If you are thinking about buying a Condo with FHA financing, do yourself a favor and look for HUD approved units.  If you are selling a unit that is not HUD approved, understand that the pool of buyers is smaller, and non HUD approved Condos are going down in value, you might have to price below market to compete.  If you live in a non- approved building, strongly suggest to your Condo Board that they go about the approval process.

To find out if a condo project is FHA approved, click here for the HUD webpage: FHA condo approval search  

According to Harvard University’s Joint Center for Housing Studies “The State of the Nation’s Housing 2009,” minorities have been affected by the Real Estate downturn disproportionally to the general population. According to the study, the incidence of high-cost loans and foreclosures is much higher in minority neighborhoods than in white neighborhoods and highest in low-income minority neighborhoods.

High-cost subprime “loans and foreclosures are heavily concentrated in low-income minority neighborhoods. (The U.S. Department of Housing and Urban Development) estimates that the median share of high-cost loans issued from 2004-06 in low-income minority census tracts was nearly one-half while the median share in low-income white neighborhoods was one-third, and the median foreclosure rate from January 2007 through June 2008 was 8.4 percent in low-income minority neighborhoods — significantly higher than the 6.3 percent in low-income white neighborhoods

Home price declines have hit minority households especially hard. Even before the recession began, the share of minority homeowners with equity cushions of less than 5 percent of the home’s value was twice as high as that of whites (6.9 percent versus 3.4 percent). Because minorities are more likely to live in neighborhoods with heavy foreclosures (where prices have dropped the most), a large share of these households has seen the value of their homes fall below the amount they owe on their mortgages.

This Week’s Real Estate Insight:

It is appalling that some unscrupulous practitioners took advantage of so many people; the shocking statistics clearly suggest that minorities were targeted for sub-prime loans that they were not prepared to deal with. The real tragedy is most of this treachery was carried out by people who “spoke their language, and understood their values.”