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Feds Looking at Easing Up Financing Rules for Condo Developers

Proposed Rules Reset Owner/Occupancy and Commercial Space Ranges
October 3, 2016
In response to changing conditions in the residential condominium market, the Federal Housing Administration (FHA) this past week proposed new regulations governing the approval process for condominium developments.

FHA is seeking to widen the range of thresholds required for FHA approval including the minimum owner-occupants in approved condo developments and limits on commercial/non-residential space. Ultimately, FHA will have the ability to specify new owner-occupancy, commercial/non-residential, and single-unit thresholds.

FHA currently requires that approved condominium developments have a minimum of 50% of the units occupied by owners. While having too few owner-occupants can detract from the viability of a project, requiring too many can harm its marketability, the agency said.

Through this proposed rule change, FHA is proposing to establish an allowable range between 25% and 75%. The range allows FHA to choose a specific percentage that is responsive to future market changes.

FHA is also looking at expanding the range for allowable nonresidential use.

FHA currently requires that the commercial/nonresidential space within an approved condominium development not exceed 50% of the project’s total floor area, and anticipates maintaining this as a requirement in the near term.

However, as the agency gains experience with this program, it may wish to modify this limitation and is therefore proposing to establish a range between 25% and 60%, it said.

FHA also has proposed reinstating spot approvals in unapproved condominium developments and to require condo projects to recertify their approval status every three years rather than the current two-year requirement.

FHA’s intent is to modify its condominium rules to ensure financial soundness and project viability, but in a manner that is more flexible where possible and responsive to the market, agency officials said.

The National Association of Realtors generally praised sections of the proposed changes, but remains concerned about the possibility of an overly high owner-occupancy threshold.

NAR president Tom Salomone expressed disappointment that HUD chose to defer the owner-occupancy decision, but said NAR will work with HUD directly and through comment to establish a data-driven threshold.

NAR is hoping for an owner-occupancy requirement set at 35%.

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