Justice Department probe, civil lawsuits pose challenge to real-estate industry practices
The Urban Institute (UI) says it appears that the current sellers’ market is having a negative impact on government backed loans and the borrowers who need to use them. In an article posted on UI’s Urban Wire blog, Janneke Ratcliffe and Laurie Goodman write that, while soaring home prices and historically low inventories of available homes have been good for sellers, many of them are unwilling to accept offers backed by FHA or VA financing.
The Federal Housing Administration (FHA) earlier this month announced that it has revised two of its forms relevant to condominium owners seeking FHA relief in the form of loan programs or certification: its condominium loan-level/single-unit approval questionnaire and FHA condominium project approval questionnaire. This is according to the publication of Mortgagee Letter (ML) 2021-09, released on March 15.
Both forms have relevance for the Home Equity Conversion Mortgage (HECM) industry, as they will each be required for any borrower seeking to get an FHA-sponsored reverse mortgage on a condominium unit. Reverse mortgage loan officers in two major origination areas are very encouraged by this news, as is a company who has worked with originators to facilitate both single-unit and full project approval.
Insurance rates of all kinds follow what up to this point has been an immutable equation. Rise when risk goes up, fall when risk goes down. Somehow, the Department of Housing and Urban Development (HUD) didn’t get the memo on this and in the process, is punishing the country’s most vulnerable homebuyers and borrowers.
In November of 2019, in HUD’s annual report to Congress on the health of the FHA mortgage insurance program, it was revealed that that the FHA MMI Fund Capital Ratio skyrocketed from 2.78% to 4.84%, a staggering 63% increase from the previous year, resulting in an additional $28 billion added to the insurance fund. With the fund sitting at 4.84, the fund is 142% above the minimum capital requirement mandated by law. It is strange to see the government involved in anything that comes in under budget and ahead of projections.
Couple this good news with the great news that everyone is working with wages rising, values are still creeping up nationally, interest rates are near their historic lows, and FHA mortgage delinquencies have never been lower, and there should be a celebration by all industry stakeholders and buyers of a substantial lowering of the monthly mortgage insurance premium paid by all FHA borrowers. But all we hear is dead silence on the subject coming out of Washington, DC. If it’s not getting lowered now, when will it ever be reduced?
On August 15th, FHA announced the return of Spot Approval, renamed Single Unit Approval, staring October 15th. Single Unit Approval is an FHA lending program that allows FHA insured mortgages in condominium associations that are not FHA approved. According to HUD, this change will result in a quadrupling of FHA insured mortgages in the 140,000 condominium associations nationwide that are not FHA approved. Not too shabby.
However, condominium associations are oftentimes diabolic and quirky entities, half the time professionally managed, the other half self-managed (or as property managers say mismanaged). Condominiums have hundreds of pages of governing and legal documents, financial documents, insurances, maps, reserves studies, board meeting and minutes, and must comply with a complete body of condominium law unique to each state.
Condominiums comprise eleven percent of the sales of residential properties in the United States, kind of the red headed stepchild of residential sales. Consequently, condominium transactions are only one out of every ten sales the average agent or lender does. This occasional experience prevents them both from ever accruing enough knowledge about condominiums and the issues that affect the sale and financing. This fact, combined with the release of Single Unit Approval, will make for certain future pain to those who do not heed the advice I’m about to give.