Suzanne Des Marais, president of the D.C. Association of Realtors and an associate broker with Urban Pace, said all-cash purchases are occurring more often. “In the last six months, I’ve had two deals where parents paid all-cash for their children’s units,” she said. But the all-cash deals are one sign of how difficult it is for buyers to get mortgage approval for a condominium.
Agent Katie Wethman of Keller Williams Realty in McLean said lenders’ restrictions and confusion over federal mortgage programs have affected the market. In condo buildings with high rental ratios, the difficulty of obtaining financing has made it very difficult for buyers to make purchases over the past two years, she said in mid-March.
Scars from the recession
A legal glitch at the Federal Housing Administration this year scuttled some sales. Since the housing collapse, the FHA has worked to tighten its rules, moving in 2009 to a process that requires that condo buildings meet certain standards before it will approve a low-cost loan for individual buyers.
Some condo associations quickly got approval, but so many missed a December deadline — about 25,000 nationwide — that the FHA changed to rolling deadlines this year. But, from about February to mid-March, the FHA put a hold on all building approvals while it untangled a legal glitch in the approval process that had some buildings getting certification while similar buildings were rejected.
The interruption killed some condo deals, said Andrew Fortin, vice president for government and public affairs at the Community Associations Institute, which represents condo and homeowner associations. Buyers who couldn’t get FHA loans because a building was rejected or put on hold “won’t be coming back to that unit,” Fortin said. “It’s too late for that seller.”
The FHA’s formal rule-making on building approvals will be done this year, FHA officials said. However, Fortin’s group maintains that the FHA process and its rules are “causing confusion” and harming the market even though the agency’s intent — to protect against the loose lending that led to the housing market’s fall — was “understandable.”
The rules imposed by the FHA and Fannie Mae and Freddie Mac are critical because the three agencies represent about 90 percent of home lending after private lenders ran from the market. Private lenders now routinely require 20 to 50 percent down payments, plus strong credit scores. The FHA requires only 3.5 percent down.
The FHA’s rules are a challenge for some buildings. It requires that no more than half of a condo building’s units can be rented out and no more than 25 percent of the space can be commercial — a problem for new buildings with ground-floor retail. Condo buildings also can be rejected because of insufficient reserves; significant pending litigation; bankruptcy/receivership or other types of financial issues; and insufficient fidelity bond insurance coverage.