Correction to This Article
Earlier versions of this column listed an incorrect Web address for finding FHA-approved condo developments. The correct address is It has been corrected.

New FHA eligibility rules could rattle condo market

By Kenneth R. Harney
Friday, December 10, 2010; 9:27 AM

Tens of thousands of condominium unit owners across the country may not know it, but their ability to sell or refinance could be jeopardized by a rolling series of federal government deadlines.

On Dec. 8, an estimated 25,000 condominium projects missed an eligibility deadline involving sales or refinancings using Federal Housing Administration mortgages. The deadline was originally set by FHA for recertification or approval of these projects, but at the last minute the agency agreed to extend eligibility for most of them - 23,000 projects - into next year, with a series of rolling expiration dates. A group of 2,200 condo projects around the country received extensions only until the end of this month.

What this means, lenders and condo experts say, is that unsuspecting unit owners nationwide could suddenly be cut off from an increasingly important source of mortgage money. In some markets where FHA-insured mortgages are used for 75 percent or more of first-time home purchases, condo sellers could be severely handicapped. In parts of the country with heavy concentrations of condos, such as California, Florida, New England, the urban Midwest and the D.C. area, the effects could even depress sales prices.

"This is a travesty" unfolding, said Jon Eberhardt, president of Condo Approvals, a national consulting firm based in Torrance, Calif. "You've got thousands of people out there with no idea" that FHA financing could evaporate for them in the near future.

Steve Stamets, a loan officer with Union Mortgage Group in Rockville, with numerous condo clients, said: "This is going to be a big problem. I expect you will have frantic sellers [of condo units] pushing management companies" to get their buildings approved.

The eligibility issue dates from November 2009, when the FHA published new rules on the types of condo projects acceptable for mortgages on unit sales and refinancings. The rules were the outgrowth of a review that found that the FHA - which is essentially a government-owned insurance company - had approved thousands of projects over the previous two decades but possessed inadequate information on their underlying homeowners associations' budgets, legal documents, insurance coverage, renter-to-owner ratios, delinquencies on condo-fee payments, the amount of commercial space, and a variety of other characteristics that could affect a project's financial stability.

The 2009 guidance spelled out toughened standards in these areas and set up timetables for taking fresh looks at projects before sanctioning additional unit financings. Condo projects that had been approved by FHA before October 2008, the guidance said, would have to submit the information required for renewed approval by Dec. 7, 2010, or lose eligibility for FHA financing.

FHA officials issued bulletins and notices during the past year to lenders, condo management companies and consulting firms warning them about the approaching deadline. Ultimately, however, according to FHA officials, about 25,000 projects nationwide missed the cutoff. Officials said they had no estimate on the total number of individual units affected, but clearly it's a sizable multiple of 25,000. For example, Eberhardt said the average condo project in California contains between 80 and 90 units.

Rather than abruptly eliminate financing for such a large and important segment of the country's housing market, FHA relented and announced the revised schedule of expirations.

Though the precise expiration schedules were not immediately available, FHA officials said they plan to notify condo associations, management companies and lenders on the specifics shortly. To check the approval status of your condo project or one where you're interested in purchasing a unit, you can go to: and select by state.

What else can you do? Tops on the list, according to FHA officials, is to get in touch with the leaders of your homeowners association. Ask them to do what's necessary to get the project through the approval hoops, either by submitting the required documentation on their own or by hiring a consulting firm or lawyer knowledgeable about FHA condo procedures. Large mortgage lenders can also get the ball rolling if they want to finance a unit in the project.

Costs for a recertification or approval can run from a little less than 1,000 to more than $3,000. Time for approvals may be a much more significant factor, however. Eberhardt says that his firm can assemble documents and create a package for FHA in about five days but that the entire process can extend for an additional 45 days to more than 60 days if FHA staff members are overwhelmed with applications. That just might happen in the coming weeks as unit owners begin learning about their financing cutoff deadlines.

Meanwhile, your sale or refinancing could be put on a punishing hold.

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