Condo Media - November 2011 - 10

FHA Reignites Transfer Fee Battle
he Federal Housing Administration (FHA) has announced its plans to disqualify condominium associations from FHA financing if the association charges a deed-based transfer fee at time of sale. This would put FHA at odds with the Federal Housing Finance Agency (FHFA), which earlier this year determined that such fees benefit community associations and do not impact the sale of community association properties.

FHFA Revised Regulation on Transfer Fees
Our members may recall the fierce, and successful, battle waged by CAI against FHFA on community association transfer fees earlier this year. In late 2010, FHFA proposed a draft regulation that would have cut off all federally backed mortgages to community associations with deed-based transfer fees. A CAI national survey found that 49 percent of all community associations have a deed-based transfer fee. These community transfer fees are levied at the time of sale to fund reserves, capital projects or operations. The fees are typically less than $500 and are calculated as a percentage of sale price, a fixed fee or a multiple of monthly assessments. The challenge is that such fees are incorporated into the deed restrictions of the community association, which typically requires a two-thirds majority of all property owners to change. FHFA sought input from the public at large and received more than 4,000 comments on their proposal. Based on the information received, FHFA revised their regulation to allow community association levied fees.

At Odds with FHFA
FHA has indicated it will issue a Mortgagee Letter later this year that would disqualify condominium associations from FHA-backed mortgages if they

had a deed-based transfer fee in place. Unlike FHFA, FHA does not intend to solicit public input on this proposal nor do they find the information gathered by the FHFA on the same topic to be relevant to its decision. For those who have worked to get FHA approval, this has resulted in FHA requirements that have proven confusing and problematic for associations. In a statement submitted to the House Financial Services Committee, CAI noted that FHA’s lack of stakeholder input “has resulted in underwriting criteria for condominium associations that do not comport with common association business operations, state law or common sense.” In August, CAI members from key state legislative action committees met with members of the House Financial Services Committee to let them know the problems FHA is creating by setting qualification criteria for condominium associations that conflict with association operations, state law or simply do not make rational sense. CAI continues to expand our grassroots efforts to force FHA to engage in a more transparent process in developing criteria for condominium mortgages. As FHA currently accounts for one in three condominium loans, getting the rules right is key to restoring confidence to the marketplace. As part of the Mortgage Matters program, CAI is working to protect homeowners in community associations and to ensure access to fair and affordable mortgage products for all current and potential residents. Follow our work and share thoughts at www.caimortgagematters.org. CAI will continue to monitor and participate in shaping the development of the FHA’s condominium underwriting guidelines to ensure that the perspective of community associations is heard. If you have any questions about the FHA’s underwriting criteria and how it could affect your

Rep. Barney Frank Addresses CAI Concerns
Just as Condo Media was ready to go to press, we learned of a meeting with CAI national staff and Rep. Barney Frank’s chief housing counsel at the House Financial Services Committee. The outcome of the meeting was that Rep. Frank (D-Mass.), who serves as the leader for Democrats on this committee, will send a letter to FHA urging the agency to modify its most recent condominium project approval guidelines to: 1. Lengthen the amount of time before having more than 15 percent of units delinquent on assessments disqualifies the project from approval. Currently, condominium associations where 15 percent of units are 30 days or more delinquent are disqualified from participation in FHA mortgage insurance programs. 2. Permit project approval for condominium associations that have outstanding loans. 3. Rep. Frank also was possibly willing to engage on the issue of mandatory fidelity coverage for community management firms, but requested additional information. CAI acknowledges that having the ranking member of the committee personally intervene is a huge step in addressing CAI concerns with new FHA guidelines. The CAI team working on FHA issues also formally applauded the dedication and hard work of CAI-NE member Stephen Marcus, Esq. of the law firm Marcus, Errico, Emmer & Brooks P.C. His steady communication between CAI-NE and Rep. Frank’s office helped convince him that this is an important public policy matter to his constituents, which was vital in focusing his attention on condominiums in the face of so many competing issues.

Condo Media will continue to bring you the most updated information related to the FHA guidelines and further developments from the meeting with Rep. Frank.

community, e-mail government@caionline.org with FHA Mortgage Insurance Requirements in the subject line. CM

CONDO MEDIA • NOVEMBER 2011

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Condo Media - November 2011

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