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Legislation easing FHA loan restrictions on condos remains in holding pattern

A bill that would make it possible for more condo buyers to get financing through the Federal Housing Administration (FHA) has run up against inertia in the U.S. Senate after gaining unanimous support in the U.S. House.  

Capitol DCH.R.  3700, which passed in the House 427-0 in February, has yet to be introduced in the Senate. The National Association of Realtors (NAR) last week put out a call to action among its 1.2 million members to pressure the Senate to introduce and move along a companion bill in time to get it passed this year. NAR is specifically supporting Title III of the bill, which eases restrictions on condominiums.

The FHA has a hard rule that disqualifies buyers from seeking FHA financing if less than 50 percent of the condominium units are owner-occupied. The bill would lower that requirement to a 35 percent owner-occupied ratio.

The rules also would compel FHA’s overseer, the U.S. Department of Housing and Urban Development, to rewrite its rules to make it easier to recertify a condo building’s eligibility through a streamlined process. FHA also would have to relax a hard rule against allowing the condominium associations to collect transfer fees when a condo is sold. FHA would allow transfer fees that are used to support community improvements, a policy that is consistent with Fannie Mae and Freddie Mac’s existing policy.

NAR said only 10 percent of condominiums nationwide are FHA-eligible. The Congressional Budget Office (CBO) estimated that the House bill that would boost FHA-guarantee lending by $8 billion between 2017 and 2021, as more condo buyers would be eligible for FHA financing. 

“H.R. 3700 is needed to eliminate the overly burdensome restrictions that stand between those buyers and a condo purchase,” NAR President Tom Salomone said. "Now that it’s been passed unanimously in the House, we’re working to remind the U.S. Senate that bringing this legislation to the floor for a vote is critically important.”

The pending House bill also encourages more flexibility in the Section 8 voucher program for very low-income renters. It also would allow the U.S. Department of Agriculture (USDA) to delegate to preferred lenders its approval authority for USDA loans and allow the agency to charge a $50 fee to lenders per loan for using the automated underwriting system. 


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