Federal Government HELPS! New Law Eases Condominium Lending Requirements

h o a homefront legislation Aug 08, 2016

While HOA law is primarily a state law issue, federal government is increasingly involved, in issues including housing discrimination, satellite dishes, amateur radio antennae, and environmental law. One of the largest expansions of federal involvement occurred in 2009, when the Federal Housing Administration (FHA) and the Federal National Mortgage Association (FNMA, aka “FannieMae”) announced new lending guidelines for condominiums, essentially imposing national minimum standards on condominium associations regarding owner occupancy, finances, insurance and governance. Previously, FHA and FNMA evaluated condominium loans on a unit by unit basis, but 2009 began to require the entire project be approved for any owner in that project to obtain FHA or FannieMae financing. The guidelines were not a Congressional action were established by these quasi-governmental lending agencies.

The guidelines were very extensive, and initially included an extensive blanket written warranties from the HOA representative signing the application. Most associations did not meet the standards, and, despite subsequent minor loosening of the standards, they still disqualify many associations today.

Housing Opportunity Through Modernization Act of 2016

On July 29, 2016, the President signed into law H.R. 3700, the “Housing Opportunity Through Modernization Act of 2016.” H.R. 3700 makes a number of financial reforms regarding housing, including liberalizing condominium project lending eligibility guidelines. The law was supported by the HOA housing sector, including the Community Associations Institute. H.R. 3700 at Section 3 directs the Secretary of H.U.D. to make several changes to the condominium project lending guidelines, and hopefully consequently make condominium loans more available.

The current requirement of 50% of the units being owner occupied will be decreased to 35%, unless the Secretary acts within ninety days to decrease the current requirement.

The current maximum of 25% of “non-residential” space in mixed use projects may be exceeded if an exception is granted, and the law requires the HUD Secretary to create standards for exceptions and train staff accordingly.

The law also requires H.U.D. simplify and ease the processing of renewal applications, once a project is initially approved, and directs the H.U.D. Secretary to consider lengthening the term of project approvals.

Many other important requirements are unchanged by this law. For example, associations still cannot have more than 15% of the members more than 60 days delinquent in assessments. At least 10% of the association budget must be placed into a reserve account. The association cannot be involved in a construction defect lawsuit, and must have fidelity insurance in place.

The project lending guidelines do not apply to detached condominiums, in which residences are not attached to any other residences. Those homes can be evaluated for lending on a unit-by-unit basis.

Even now, seven years after the initiation of the federal lending requirements on associations, most condominium associations are not FHA/FNMA approved for loans. Many HOAs cannot qualify, while others do not view approval as a priority. Although approval is beneficial, condominium associations are not legally obligated to meet the FHA/FNMA requirements and boards are not required to pursue FHA/FNMA approval. The association’s (and the board’s) basic responsibilities are to maintain and preserve common areas and comply with the law and governing documents. Making sure that association members have the most financing options is not the board’s obligation.

Visit www.freddiemac.com or www.fanniemae.com for further information and all the requirements for approval. Read H.R. 3700 at www.congress.gov.


Written by Kelly G. Richardson

Kelly G. Richardson Esq., CCAL, is a Fellow of the College of Community Association Lawyers and a Partner of Richardson | Ober | DeNichilo LLP, a California law firm known for community association advice. Submit questions to [email protected]. Past columns at www.hoahomefront.com. All rights reserved®.