Even in 2013, with the economy slowly recuperating and markets improving, the words “housing crisis” still have the power to send shivers down the spines of homeowners still feeling the effects of the 2008 market collapse. That collapse was itself triggered for the most part by the writing of “bad” mortgages to homeowners who couldn’t afford to pay. While homeowners in some markets escaped much better than others, the long-term repercussions can still be felt here, especially among condo association and unit owners.
In response to what was happening at the time, the Federal Housing Administration (FHA) and U.S. Department of Housing and Urban Development (HUD) severely tightened their requirements for how much money buildings and HOAs must carry in their reserve funds before prospective buyers can secure loans to purchase units within the building.
Bruce Weltin, associate vice president with home lender Shamrock Financial Corporation, says that new lending guidelines from HUD mean that FHA loan requirements will be significantly tightened for unit sales and that may have a profoundly negative effect on the ability to sell or buy a community association unit that requires FHA financing.
New Game, New Rules
It was about 30-40 years ago that loans started to be securitized, which means packaged together and sold through the security markets. Most of those go through Fannie Mae.
“What happened when all these loans started going bad, Fannie Mae started having issues and started looking at what they could have done to prevent this,” says Stephen Beer, CPA, of the certified public accounting, auditing and management consulting firm of Czarnowski & Beer, which serves community associations and HOAs from New York City to Florida. “So, they came out with new guidelines, where banks have to follow a selling guide if they are going to be able to sell their loans to Fannie Mae. While meeting criteria for Fannie Mae, the bank figures if they have rules, they should have it on all their loans, so it ended up becoming the standard.”