Tuesday, April 8, 2014

The Return of FHA Spot Loans on Condominiums?

Most people don't even know what an FHA "spot loan" is, and most of them don't care and wouldn't care even if they did know what one was. Anyway. If you own a condo and you're trying to sell it, but can't, or you're trying to buy one, but can't, you're in the minority of lay people who probably know what a spot loan is.

Since 2009 (some say 2010), a condominium project had to have FHA certification before units could be financed with FHA loans. Those are the cool low-down (3.5%) loans detached homes and townhomes are eligible for. But un-FHA-approved condos? Not. But that may be changing, according to this article in today's Inman News.

In the olden days before FHA changed its mind, units in non-approved facilities could receive spot loans, whereby a certain number of units could get FHA-insured loans placed on them when sold. To receive FHA's blessing, a condo project had to prove up this really dumb and inconvenient stuff, like being in good financial condition, the units having kitchens, the walls and foundation being in decent shape, and other such tedious details.

So, who cares, and why?

Condo owners for sure. If they want to sell, someone can buy without having to put at least 20% down. Some first-time buyers might care, too, because condos often offer a lower-priced alternative to scarce detached homes and townhomes.

Condominium Owners' Associations will do the happy dance, especially those too cheap and lazy to go through the FHA certification process (and, to be fair, some tried, but were denied approval because of kind of dumb technicalities; hey, this is the gummint, after all).

Real estate and mortgage brokers will be doing the High Five and Butt bump.

Not so developers, at least for a while. For years, they've been blaming construction defect laws for not building condominium projects. Colorado, Nevada, and Mississippi legislatures (and others I couldn't find) have at least considered bills to modify CD statutes. But now, the truth will out: They haven't been building new projects (a) because the economy isn't great, and (b) no one could buy the condos anyway because of the lack of FHA financing.

What does The Captain think? Hmm. The jury's out. I have always had a love-hate relationship with condo-minimums, but I'll save that for later. And I'm also scratching my head over what looks like one more step along the Yellow Brick Road to Subprime Oz and the masked men behind the curtain.