FHA kicks off 2016 with some of the strongest books of business in years. In November 2015, FHA reported that its Mutual Mortgage Insurance Fund surpassed the mandated 2 percent capital reserve ratio requirement for the first time since 2009. Early payment delinquencies are down, serious delinquencies are at a seven-year low and loss recoveries have improved by 43 percent since 2011. Last January, FHA reduced its mortgage insurance premiums by 50 basis points—an action NAR members had called for since early 2014—and was able to serve over 600,000 first-time homebuyers in fiscal year (FY) 2015. The increase in borrowers contributed to the solvency of the fund and represents the importance of policy changes. The improved health of the fund strongly positions FHA to take additional steps to ensure that more homebuyers can use FHA financing, especially for condominium purchases.
Over the past several years, FHA has lagged in helping homebuyers use FHA financing for condominium purchases. Condominiums are often the most affordable homeownership option for first-time buyers, small families, single people, urban residents and older Americans. The time needed to save for a down payment can be significantly lower for a condominium than for a single-family home. Unfortunately, there are not enough condominiums in the U.S. that are certified to allow FHA financing. FHA’s certification rules are overly restrictive, preventing potential homebuyers from achieving the American Dream.
NAR has long advocated for broad improvements to FHA’s condo rules, arguing that existing policy is overly restrictive and keeps many consumers from buying and selling a home. NAR believes there are several steps FHA can take to improve access to FHA financing for condos, including eliminating the owner occupancy requirement, expanding the FHA concentration of units that can be FHA insured, and lengthening the time period for recertification. FHA should also reinstate the spot loan approval process and allow certain transfer fees that provide a direct benefit to the condominium property and the homeowners.
On November 12, 2015, at the National Association of REALTORS® Annual Conference and Expo in San Diego, FHA announced mortgagee letter 2015-27, which made immediate changes to condominium rules and were in line with those requested by NAR. The mortgagee letter revises the procedure for calculating owner occupancy, provides expansion of eligible project insurance coverage and streamlines the documentation requirement for recertification. While many additional policy changes are needed, it is a step in the right direction.
Additionally, Representative Blaine Luetkemeyer (R-MO) introduced H.R. 3700, the “Housing Opportunity Through Modernization Act of 2015,” which has garnered bi-partisan support in Congress. The bill would ease the recertification process, reduce the owner/occupancy ratio, streamline the process of approval for buildings with more than 25 percent commercial space, and conform FHA’s rules on private transfer fees to FHFA.
During an October 2015 speech, HUD Secretary Julián Castro commented, “It’s still too hard for creditworthy borrowers to get a loan. And groups who should be leading the home-buying market of the future—millennials and communities of color—are among those being left out.” NAR and the housing industry will continue to advocate to expand housing opportunities and encourage FHA to publish a proposed rule on condominiums early in 2016. NAR will also work to ensure H.R. 3700 is considered by Congress.
This column is brought to you by the NAR Real Estate Services group.
Sarah Young is the director of Real Estate Services for the National Association of REALTORS®.
To learn more about NAR’s efforts, visit www.realtor.org/political-advocacy.
