Good News, Bad News in New FHA Condo Guidelines

FHA Condo GuidelinesConsidering the housing market's collapse in late 2008 -- you've probably heard something about this -- it was pretty much inevitable that the Department of Housing and Urban Development and Federal Housing Administration would do a thorough revision of their condo-financing policies. The fact that big changes were certain, though, didn't necessarily mean that anyone was certain of what those changes might look like. With the FHA's implementation date of December 7 looming closer, the shape of the FHA's new policies is becoming somewhat clearer. The results offer good news and bad news for both new condominium buildings in New York City and those looking to buy (and sell) apartments in New York.One of the key points of interest among real estate watchers was what percentage of new condominium developments' inventory the FHA would agree to. The FHA had already announced that it would be creating tough approval standards for new condominium developments -- we wrote about that in this post -- in order to avoid committing taxpayer-backed loans to wobbly developments. This made many optimistic that, given the greater certainty such standards would create, the government would be more aggressive about offering financing for a greater number of condominiums for sale. Instead, the FHA has announced that it will be financing 50%, at most, of the apartments for sale in qualified new condominium buildings. This is up from the 30% that was initially reported, but still not exactly music to developers' ears. Already-finished condominium buildings are exempt from this standard, apparently, but it's still not what real estate agents wanted to hear. There's good news here, too, though, both for developers and home buyers. This comes via the announcement that the standard of approval for issuing government-backed loans in a new condominium building has been loosened somewhat relative to what was first reported. Initially, FHA standards required that 50% of a new condo development's units be pre-sold in order for it to qualify for government loans -- that has now been lowered to 30%, which is a boon to both developers and the prospects of new construction apartment buildings, both in New York City and elsewhere. The market has changed, both for New York real estate and nationally, and will continue to change. The embarrassing (and very expensive) failure of Freddie Mac has forced the government's hand in terms of amping up standards. The good news seems to outweigh the bad in this case, though -- the new regulations seek to shore up the stability of the condominium market without making it too difficult for home buyers to get advantageous government-backed loans. We won't know until December 7 what the final rules will look like, and it will be months after that before we can see how they'll impact the market, but that sound you hear is real estate developers letting out a sigh. This could've been a lot more onerous, and new rules that make sense could help create a more stable (and profitable) real estate market going forward. We hope.

NYC Daily Real Estate Blog