One of the reasons the Steamboat condo market–and all resort markets nationwide–is still a challenge is because Fannie Mae guidelines have made getting a condo loan nearly impossible for many Steamboat condo developments. Lenders won’t finance anything that doesn’t meet those guidelines, so condos with front desks, nightly rentals, more than 50% of the development not owner occupied, etc, cannot get conventional 15- and 30-year loans. In Steamboat, those developments include popular condominium developments like Trappeurs Crossing, Trailhead Lodge, The West, The Phoenix, Bear Claw, etc.
Fortunately, the condo financing rules were updated last week and we are hopeful condo lending will get easier.
Read the letter below from Sarah Thorsteinson, the Government Affairs Director for the Steamboat Springs Board of REALTORS®:
On September 13, HUD issued a Mortgagee Letter with long awaited updates to condo financing rules. While the proposed rule does not go far enough, there are improvements. See below for an overall summary of the proposed changes.
* The “under construction” project type has been expanded to include projects that have been completed for less than one year and projects that are gut rehab conversions. The “under construction” designation also applies to legally phased projects.
* “Newly converted conversions” clarified to include project applications submitted for approval within two years of the date of the conversion; after two years, existing project requirements apply. Pre-sale lowered from 51% to 50%, and developer ownership tolerance increased from 49% to 50%.
* Non-residential/commercial space exception requests for projects that exceed the 25% limit on nonresidential use must be processed by the jurisdictional HOC under the HRAP process. Project exception requests that exceed 35% nonresidential use must be submitted to the Philadelphia HOC for processing under HRAP. The package of documentation/exhibits that must accompany an exception request has been expanded to include marketing and neighborhood analyses, photos of the project and neighborhood, and detailed information about the commercial tenants and lease terms. Exception requests will be considered for up to 50% nonresidential use (and possibly higher if specifically approved by the FHA Commissioner or designee).
* Investor ownership percentage in existing or non-gut rehab projects increased from 10% to 50% at time of project approval provided at least 50% of the units have been conveyed or are under contract as owner-occupied. Unoccupied/unsold units owned by developer/builder are not considered investor owned if not previously rented/occupied. Eligible nonprofit/government programs are subject to the same investor and owner occupied percentages.
* Definition of “delinquent” HOA dues changed from more than 30 days past due to more than 60 days past due.
* Additional fidelity insurance options for management companies.
* Project certification language is softened by acknowledging reliance on attorney’s advice for compliance with state and local condo laws and removing previous language that person certifying has no knowledge of circumstances or conditions that may cause a mortgage to become delinquent.
* Pre-sale requirements for proposed, under construction, or gut rehab–minimum owner-occupied requirement of 30% of the declared units. Legally-phased projects must meet 30% presale and 30% owner-occupancy requirements. Unoccupied and unsold units owned by the builder/developer are not considered as investor owned unless the unit is rented or has previously been occupied.
NAR worked with the NAHB and the Community Associates Institute on seeking the following changes:
(1) the increase in investor ownership percentage for existing projects,
(2) the change in the definition of delinquent HOA dues from 30 days past due to 60 days past due,
(3) the softening of the language in the project certification statement and
(4) greater flexibility on the percentage of non-residential use in a project.
NAR was disappointed that HUD did not reinstate the previous FHA condominium spot loan program, whereby an individual condo unit in a non-FHA approved project can be eligible for FHA financing if certain requirements are met. NAR suspects that not having a FHA condominium spot loan program available to buyers in older condo projects that do not have FHA project approval is adversely affecting a significant number of potential home buyers and particularly, first time buyers. NAR is also disappointed they did not address the owner/occupancy ratio. NAR will continue to work with coalition partners to get these items back on HUD’s radar. There will be another comment period on the proposed rulemaking before they go into effect next year.