NAR Calls for Changes to Condominium Rules for GSE and FHA Mortgages

Date: Nov. 3rd, 2008

By: Jerome Nagy, Jeff Lischer, Megan Booth
Last Updated on 11/3/08
On October 28, 2008, the National Association of REALTORS® President Dick Gaylord sent letters to US Department of Housing and Urban Development (HUD) Secretary Steven C. Preston and the James B. Lockhart III, Director of the Federal Housing Finance Administration (FHFA) to request reform of the owner-occupancy rules for condominiums. In particular, NAR is requesting that the 51 percent owner-occupancy requirement be reduced slightly. The letters also request that REO properties not be counted in calculating the owner-occupancy ratio. Under existing rules, REO properties are counted as not-owner occupied making it difficult for some condominium developments to meet 51 percent threshold for owner-occupancy. GSE and FHA loans are not an option for buyers interested in these developments. Since buyers have few other mortgage options this can put a condominium development in peril.

Reducing the 51 percent occupancy ratio for GSE and FHA mortgages to a number below 50 percent will allow more buyers to purchase units in condominium developments that have vacant units as a result of bank foreclosures. Temporarily suspending the rules so bank-owned REO properties are no longer counted for the purpose of calculating occupancy ratios will help developments with significant percentages of REO properties. The modifications requested by NAR will help lenders sell foreclosed properties, give homebuyers access to more fair and affordable financing options and a wider choice of condominium developments, and benefit existing owners of units in condominium developments as owner-occupancy rates increase.