Bowing to Pressure, FHA Relaxes Condo Restrictions

WASHINGTON — The Federal Housing Administration is making temporary but immediate changes to its condominium rules to ease its owner-occupancy and recertification requirements.

Under the temporary changes, condo units that are second homes, but not the owner's principal residence, will be considered owner-occupied units and count toward the current 50% owner occupancy requirement, according to a FHA mortgagee letter issued Friday morning. 

"For existing condominium projects seeking recertification, FHA will now only require applicants to submit documents reflecting substantive changes since the project's prior approval," according to a Department of Housing and Urban Development press release.

Ed Golding, the FHA's principal deputy assistant secretary, announced the changes Thursday at a National Association of Realtors conference in San Diego.

"Realtors and consumers got a welcomed piece of news today with HUD's commitment to fix FHA's condo policies and broaden opportunities for families to find a home," according to NAR President Chris Polychron.

The changes will expire after one year, but FHA is working on a formal rulemaking to make permanent alterations to its owner-occupancy requirements, limits on commercial space and spot approvals.

Spot approvals would make a single unit in a non-certified condo building eligible for FHA-insurance. FHA stopped allowing spot approvals several years ago.

HUD data shows that FHA condo loan endorsements dropped to 22,800 in fiscal year 2014 from 57,800 a year earlier.

"The fact that the mortgagee letter is effective immediately tells me that FHA understands that there is a problem," said Brian Chappelle, a mortgage consultant and co-founder of Potomac Partners.

NAR and other industry groups have been pressuring HUD to shore up the condo program and support legislative efforts to speed up its condo rulemaking process.

"Condos are often the most affordable option for homebuyers, especially first-time buyers, and making sure FHA financing is an option is important to supporting homeownership," Polychron said.

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