Condo Media - December 2012 - 31

“We would have liked a looser standard on this,” Fortin said, taking into account the nature of any pending litigation and the actual risk it poses. “But we understand the FHA’s position,” he emphasized. Construction defect claims usually entail large sums and involve serious structural problems in communities. “We don’t begrudge the FHA’s significant concerns about the potential impact on the financial health of associations and individual borrowers.”

“Movement” on Assessments
The FHA also has not altered its negative view of special assessments as an indicator of poor financial planning, rather than the reasonable response industry executives suggest it often is to an unanticipated expense or a major capital improvement. While there has been no “official change” in the FHA’s official position, Fortin said, he has seen a change in how it is

being “interpreted.” In recent conversations, agency officials have moved toward what Fortin described as “a more reasonable standard,” focusing not on individual assessments but on “a pattern of assessments” as possible evidence of “a lack of budget discipline.” That kind of analysis “seems logical” in theory, Fortin said. “I like what they’ve told us. But we don’t know yet what it’s going to look like in practice.” One of the most significant changes Fortin has detected is not in the FHA’s condominium guidance per se, but in the process used to develop it. “Agency officials have told us that any future changes in the condominium program will be made by publishing notice of proposed rulemaking and soliciting industry input first,” rather than publishing guidance and then trying to revise it to reflect industry concerns, as was the case with the certification guidelines.

The agency’s failure to follow the formal rulemaking process in dealing with condominium issues has been a major industry complaint, voiced angrily over the past few years and expressed directly to Congress. Underscoring that concern in his press statement, Skiba said, “CAI urges the agency to establish a regulatory foundation for its condominium program to provide long-term certainty of process, flexibility and support for the future of condominium housing,” he said. Fortin said he is hopeful that will be the case. “This is the third mortgagee letter the FHA has published,” Fortin said, and he acknowledged it appears to be “the best one yet. But it took us four years to get where we could have been in six months,” he said, had agency officials initiated a dialogue with the industry at the beginning of the rulemaking process instead of at the end of it. CM

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Condo Media - December 2012

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