On July 29th, President Obama signed into law The Housing Opportunity Through Modernization Act of 2016. The new law has some very attractive changes for condominium financing.
The new law calls for changes to the current rules of the Federal Housing Administration (“FHA”), which disqualified condominium purchasers from obtaining an FHA guaranteed loan if less than half of the condominium units were owner occupied. That mandatory ownership threshold has been reduced. Some of the key changes include:
- Reducing the owner occupancy requirement for a condominium to qualify for FHA financing to 35% from the previous 50%;
- Easier FHA eligibility re-certification process for condominiums; and
- Relaxes a hard rule against condominium association transfer fees.
Under the new law, the Department of Housing and Urban Development (“HUD”), which oversees the FHA, has to amend their rules to make the process easier for a condominium building’s eligibility for re-certification. The FHA also must relax their policy as it pertains to transfer fees. Currently, the FHA does not allow for condominium associations to collect transfer fees when a condominium unit sells, but this new law allows for a change in that policy. The FHA will now allow transfer fees if such fees will support an improvement in the community, which is more in line with the policies of the federal home mortgage companies of the Federal National Mortgage Association, known as Fannie Mae, and the Federal Home Loan Mortgage Corporation, known as Freddie Mac.
The Congressional Budget Office, an agency that independently analyzes Congressional budgetary and economic issues, has estimated that the law will increase FHA-guarantee lending by $8 billion between 2017 and 2021 because FHA financing will be more readily available for condominium buyers.
The new law also makes several changes to current rules regarding public housing. This includes rental assistance and public housing programs by HUD, requirements for condominium mortgage insurance by the FHA, and the single family housing guaranteed loan program by the Department of Agriculture (USDA). The law makes changes to the Section 8 voucher program as well. The Section 8 voucher program works to assist very low-income families, the elderly, and the disabled allowing them to afford decent, safe, and sanitary housing in the private market.
On its way to the Oval Office, H.R. 3700 passed through the House of Representatives by a unanimous 427-0 vote and passed the Senate the same way. Many industry trade groups were in support of the bill with the National Association of Realtors (NAR) taking a particularly proactive stance in support of the bill. Industry experts hailed the new law as a win and much need relief for home buyers and creditworthy borrowers.