By Bob Gourley
Why does FHA matter to your community? How will you tell the story?
Have you ever tried telling a very technical story to someone who isn’t very tech savvy? You know from the glossy-eyed look of your listener that they just aren’t following you. Maybe you’re giving them too much information. If they had a remote control in their hands, they would probably have clicked you away by changing the channel. Such is the challenge of explaining how new changes in mortgage funding are going to impact your community.
Most of us remember the federal government’s decision to start getting our nation’s financial institutions in order. Banks were being failed. Industries were being bailed out. There was a lot of money being moved around to shore up shaky financial institutions. As taxpayers, you and I footed this bill, whether we wanted to or not. The end result may not be known for years but there are some measures that are about to have a meaningful impact on your community.
Without getting too technical on how the mortgage business works, there are a few names you’ll need to know for this story to make sense. The first two have been commonplace in the American lexicon for years. Fannie Mae (Federal National Mortgage Association or FNMA) and Freddie Mac (Federal Home Loan Mortgage Corporation or FHLMC) were created years ago by the federal government to provide insurance and funding to the lenders that routinely provided mortgages to homeowners. As of September, 2008 both of these agencies are considered to be in a conservatorship of the federal government, which allows them to service their existing obligations but does not allow them to take on new obligations. In other words, primary mortgage lenders can no longer insure or sell their mortgages to either and now need to look for other sources to provide the funds that pay for mortgages. That’s where FHA (Federal Housing Administration) comes in.
The FHA is not new. In fact, it predates both Fannie Mae and Freddie Mac. As you might expect, FHA exhibits tighter guidelines on how it insures and loans money and that is where the new challenges arise. Condominium properties, in particular, need to be mindful of the FHA lending compliance rules if they wish to have any mortgages within its community financed through FHA-backed lenders. Considerations such as amount of the loan, number of units within a community that are already FHA-backed, per centage of units mortgaged, pending lawsuits against the association and more will have an effect on a unit owner’s or potential unit owner’s ability to secure a mortgage. Can you imagine the impact on your community if a lender deems your condominium association non-FHA compliant? Current owners may be unable to sell unless they can procure a cash buyer. Refinancing could be effected as well.
This change in how mortgages are procured is very likely to impact your community. The best way to stay ahead of this curve is to take action now. Talk to local lenders about their mortgage programs for condominiums. Use your newsletter to talk to your residents about the coming change so that those unit owners who are thinking of selling are aware of the potential problem before they sell their unit. Attend seminars on FHA compliance so that you can take necessary steps in securing the mortgage ability of units within your community. FHA ignorance is not bliss. Education is your best strategy for preparedness.