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Stricter Condo Lending Rules to Avert Government Foreclosures
October 20th, 2009 by 
jparker
The languishing economy and rising unemployment rate are driving the number of government foreclosures to the roofs. As part of an effort to address the growing foreclosure problem, the U.S. Federal Housing Administration (FHA) has tightened its rules on condominium lending.
The rules, which cover condominium developments that will qualify for FHA-supported mortgage loans with low interest rates, will take effect on November 2. Under the new lending rules of the FHA, a condominium development should be 50 percent sold and at least 10 percent of the condo units are owned by one individual.
Additionally, loan delinquencies are allowed only on 15 percent or less of the units in the condominium buildings. Industry experts said that the stringent rules could help many condominium owners avert government foreclosures as they will be given affordable mortgage loans.
They said that FHA-backed loans are important to many property sales where prospective buyers failed to qualify for traditional financing. They added that changes in the rules will adversely affect condominium sales.
A study of the impact of government loan program on new property sales showed that the FHA financing is popularly used by builders in Northern California. According to the report, government mortgage programs were important in 2009. It noted that 59 percent of home sales in 2009 were dependent on financing programs of FHA, Veterans Affairs and the U.S. Department of Agriculture.
In Northern California, FHA financing accounted for 68 percent of the total sales for this year. In Southern California, FHA loans accounted for 48 percent of the total sales. The new condominium lending rules of the FHA are expected to protect the agency from incurring more losses.
Meanwhile, the federal government has set November 30 as the deadline for first-time homebuyers to avail of the $8,000 tax credit. But industry experts are hopeful that the federal government would give in to the growing pressure to extend the tax credit beyond its November deadline.
If the tax credit will be extended, it would mean good news to builders and a possible quick recovery of the housing market.
Industry experts said that making FHA-insured home loans with low interest rates more accessible would mean a lot in helping homeowners avoid government foreclosures in the future.
