“If you aren’t fired with enthusiasm, you will be fired with enthusiasm.” -Vince Lombardi: Was a football coach and speaker
FREE EXCLUSIVE SPEAKING EVENT ON MONDAY JULY 25, 2011
SPEAKER: Rick Ruby of The CORE Training, Inc. (Also Zack’s personal coach for the last 2 years)
TOPIC: “How To Turn Buyers Into Closed Transactions And Exceed Your Goals for 2011”
Click on image for more information and to RSVP TODAY (Click on Realtor Tab)! (Due To Limited Seating You MUST RSVP)
FHA’s NEW RULES: MORE PAIN FOR CONDO MARKET
Is the Federal Housing Administration taking a back-door exit away from condos — a key real estate segment in which it’s recently built up market shares of 40 percent and higher in many urban areas?
Could the agency be tightening its rules in order to cut loan volume in the months ahead, potentially putting thousands of unit sellers, buyers, homeowners associations and realty agents in a mortgage-money squeeze?
FHA adamantly denies that it’s doing anything of the sort, and insists that new rules rolled out at the end of last month represent prudent responses to the serious risks the agency’s insurance funds confront.
But condo industry executives and community managers say FHA’s tougher regulations have a wet-blanket effect on associations’ ability — and willingness — to get their projects approved for financings by the agency. Without an entire project certified, potential buyers of units cannot obtain FHA-backed loans, which in turn makes it more difficult for current unit owners to sell and could depress property values.
FHA’s low down payment minimums — 3.5 percent — and relatively generous credit and debt ratio policies have made it the go-to financing source during the past several years for moderate-income buyers who previously would have sought conventional mortgages. With high-cost-area mortgage limits of $729,750 — at least until Oct. 1, when they are scheduled to drop — FHA has even become a player in some upper-end condo communities.
The biggest complaint about the new FHA rules, is the requirement that anyone who signs an application for certification or recertification of a project must assume full responsibility under federal law for the accuracy of every piece of information contained in the submission.
The penalties for subsequent findings that information was inaccurate or omitted can be severe — ranging up to $1 million in fines and 30 years in prison for the worst infractions.
Since the certification package submission covers myriad items that can be difficult to pin down precisely — such as the percentage of units currently occupied by renters on a given date, or whether project documents are in full compliance with every state law and regulation — many association boards and managers are reluctant to stick their necks out to guarantee accuracy of the unknowable under threat of future federal fines.
Condo boards, unit owners and managers also are upset by other rules from FHA, including:
1. A Requirement that no more than 15% of all units in the profject are no more than 30 days delinquent on their condo assessments, including bank-owned (REO) units, which are notorious for nonpayment of fees.
Often condo boards can’t even determine who actually owns a foreclosed unit, said Andrew Fortin of the 30,000-member Community Associations Institute trade group, “so how can FHA expect volunteer condo boards to find this information and collect the assessments?”
Worse yet, he said, most boards or management companies don’t learn about delinquencies on assessments until well after 30 days.
Plus, FHA’s new rule conflicts directly with some state laws, such as in North Carolina, where boards are prohibited from even seeking to collect fees until they are more than 30 days delinquent.
2. A Requirement that not only must condo boards carry fidelity insurance on their officers, but that management companies must carry policies as well.
According to Fortin, that requirement conflicts with state law in Maryland, where condo boards already must purchase fidelity insurance for their management companies. Under a strict reading of the rules, he said, that means management companies will be forced to buy what amounts to double coverage.
3. A variety of technical rules that may hamper condo conversions and so-called gut rehabs.
For example, Philip Sutcliffe, principal of the condominium consulting firm Project Support Services, said FHA’s new rule requiring full, professionally prepared studies of financial reserves will be too expensive for many projects to afford. Sutcliffe said he sometimes wonders whether “anyone at (the U.S. Department of Housing and Urband Development) truly understands how condominiums work in the real world.”
As a consequence of these and other concerns about the new rules, recertifications of existing condo projects for FHA mortgage insurance are lagging. An FHA official confirmed to me that just 1,000 of approximately 12,000 projects eligible have done so in recent months — a no-show rate that critics call ominous.
In response, FHA officials argue that most of the agency’s rules track similar requirements in the conventional financing marketplace. Moreover, they say, at a time when condo projects have taken especially hard hits in the housing downturn — and many projects in places like Florida, Arizona and Nevada have experienced soaring rates of delinquency and foreclosure — they have a duty to protect FHA’s insurance funds against avoidable losses.
Asked whether a calculated phasedown of FHA’s condo volume lurks behind the toughened rules, Lemar Wooley, a spokesman for the agency, said “that is not the case. FHA is committed to continuing its mission of providing affordable, sustainable homeownership opportunities while managing and mitigating risk. Our new condo guidance is consistent with that commitment.”
EXISTING-HOME SALES SLIP, BUT PRICES STABILIZE
Existing-home sales eased in June as contract cancellations spiked unexpectedly, although prices were up slightly, according to the National Association of REALTORS.
Sales gains in the Midwest and South were offset by declines in the Northeast and West. Single-family home sales were stable while the condo sector weakened.
Total existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, declined 0.8 percent to a seasonally adjusted annual rate of 4.77 million in June from 4.81 million in May, and remain 8.8 percent below the 5.23 million unit level in June 2010, which was the scheduled closing deadline for the home buyer tax credit.
Lawrence Yun, NAR chief economist, said this is an uneven recovery. “Home sales had been trending up without a tax stimulus, but a variety of issues are weighing on the market including an unusual spike in contract cancellations in the past month,” he said. “The underlying reason for elevated cancellations is unclear, but with problems including tight credit and low appraisals, 16 percent of NAR members report a sales contract was cancelled in June, up from 4 percent in May, which stands out in contrast with the pattern over the past year.”
Yun cited other factors in the sales performance. “Pending home sales were down in April but up in May, so we may be seeing some of that mix in closed sales for June. However, economic uncertainty and the federal budget debacle may be causing hesitation among some consumers or lenders.”
The national median existing-home price for all housing types was $184,300 in June, up 0.8 percent from June 2010. Distressed homes – foreclosures and short sales generally sold at deep discounts – accounted for 30 percent of sales in June, compared with 31 percent in May and 32 percent in June 2010.
According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage was 4.51 percent in June, down from 4.64 percent in May; the rate was 4.74 percent in June 2010.
Existing-home sales in the Northeast fell 5.2 percent to an annual pace of 730,000 in June and are 17.0 percent below June 2010. The median price in the Northeast was $261,000, up 3.1 percent from a year ago.
Existing-home sales in the Midwest rose 1.0 percent in June to a pace of 1.04 million but are 14.0 percent below a year ago. The median price in the Midwest was $147,700, down 5.3 percent from June 2010.
In the South, existing-home sales increased 0.5 percent to an annual level of 1.86 million in June but are 5.6 percent belowJune 2010. The median price in the South was $159,100, down 0.1 percent from a year ago.
Existing-home sales in the West declined 1.7 percent to an annual pace of 1.14 million in June and are 2.6 percent below a year ago. The median price in the West was $240,400, up 9.5 percent from June 2010.
GEN Y TO LEAD ‘MASSIVE INCREASE IN HOUSING DEMAND’
Watch out for Generation Y: This large, diverse, well-educated generation will drive the housing market recovery over the next 10 years, according to economists with the University of Southern California Lusk Center for Real Estate.
Gen Y (15-32 year olds) boasts about 77.4 million members, which is about equal in size to the baby boomers (46-64 years old). Yet, Gen Y is much more diverse and educated (60 percent of Gen Y goes to college), according to the center, which recently presented its findings at the USC Lusk Center Orange County Executive Briefing.
Stan Ross, Lusk Center Chairman of the Board, says that “baby boomers and Gen Y comprise 50 percent of the population and will soon be part of the largest U.S. wealth transfer ever.”
As more of this age group joins the work force, “they will produce a massive increase in housing demand,” forecasts the USC’s Lusk Center.
However, Ross points out “these kids are concerned. They have watched the stock market, financial markets, and economy wipe out their parents’ retirement plans. As a result, they will choose lower-risk investment strategies.”