Upcoming FHA rule could squeeze homebuyers and sellers | Cross River Real Estate


Realtors, lenders and community associations are up in arms about forthcoming Federal Housing Administration rules they believe could make mortgage financing more expensive — maybe even impossible — for large numbers of buyers and sellers around the country.

The concerns are not about condo certifications this time around — an issue that has caused hundreds of condo developments to drop their eligibility for FHA mortgages on individual units. The new problem is even broader, affecting potentially tens of thousands of homeowner associations that routinely impose transfer fees whenever units are sold.

Florida condos image via Shutterstock.
Florida condos image via Shutterstock.

The fees, which range from $100 to $500 in most cases, frequently are used by HOAs to replenish capital reserves, make improvements to infrastructure or even fund environmental conservation activities.

Unlike the controversial investor-driven private transfer fees marketed by Wall Street’s Freehold Capital Partners in 2010 and 2011, most HOA transfer fees are used to benefit the community.

Here’s the problem: In response to the widely criticized private transfer fee programs, Fannie Mae and Freddie Mac adopted guidelines in 2012 that banned private-purpose, investor-benefit transfer fees from eligibility for conventional financing. Their rule carefully distinguished between the Freehold Capitol type of fees — which generated income streams for bond investors for up to 99 years — and the typical HOA transfer fees designed to benefit the community’s residents.

More recently, lawyers in the U.S. Department of Housing and Urban Development’s office of general counsel have warned FHA that under existing “free assumability” regulations, the agency is not permitted to insure mortgages on properties that come with “restrictions on conveyance” — encumbrances on the title that could hamper transfers. That includes fees required to be paid at the sale of units in communities governed by homeowner associations.


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