Housing Opportunity Through Modernization Act of 2016
Well Deserved Financing Relief
Following the real estate collapse in 2008 and subsequent recession, the United States Department of Housing and Urban Development ("HUD") and the Federal Housing Authority ("FHA") imposed detailed and restrictive requirements in order for the FHA to provide mortgage insurance on condominium loans. As a result, many condominiums were no longer in compliance with FHA regulations, and potential buyers could not qualify for the much more attractive FHA and other governmentally backed financing. The downturn in the real estate market and buyers' increased difficulty in obtaining condominium financing contributed to large financial institutions shifting their focus from financing development of condominiums to financing apartment projects.
The negative impact of the FHA's onerous requirements prompted massive consumer complaints. Congress stepped up and the U.S. Senate and the U.S. House of Representatives each unanimously adopted HR 3700, the "Housing Opportunity Through Modernization Act of 2016." A summary and history of HB 3700 can be found here: HR 3700
Title III of HR 3700 seeks to address some of the main problems by:
- Streamlining the re-certification process for Associations to make it less burdensome;
- Reducing the owner-occupancy ratio from 50% to 35% unless the FHA can justify a percentage larger than 35%;
- Allowing transfer or moving fees; and
- Providing more flexibility on the amount of commercial space allowed in mixed use developments.
The Resolution became law on July 29, 2016, but has not yet been implemented by the FHA. The condominium industry is optimistic that once implemented, the updated FHA guidelines will stimulate condominium financing and further stimulate the already robust demand for condominium units. Improved financing options for buyers and increased demand should, in turn, prompt more condominium development.
We will continue to monitor and update you on the FHA's implementation of HR 3700 and other legal issues impacting condominium and homeowner associations. If you have any questions, we are here to help.