One of the most painfully complex areas relating to shared ownership communities (condos, co-ops and hoas) are the varied and sometimes impenetrable rules laid out by three very important organizations–the Federal Housing Administration, Freddie Mac and Fannie Mae. I’ve written a number of articles on the effect of these regulations in the past–you can find them all here at the New Neighborhoods website.
First, a quick review of what we’re talking about. The FHA is a division of the Department of Housing and Urban Development (HUD) that INSURES mortgage loans. Many people assume that FHA actually writes loans, but that’s not correct–they are simply insuring banks against failure of their loans. In order for banks to get their loans insured, however, they must follow a set of strict guidelines, especially when it comes to SOCs.
Freddie Mac is a corporation, chartered by congress, that buys mortgages from lenders. They too have their own guidelines regarding condo, co-ops and hoa loans. Fannie Mae is extremely similar in that they are also a Government Sponsored Entity (GSE), but they fund their investments with debt securities. And, yes, even Fannie Mae has their own, totally separate guidelines for backing mortgages in SOCs.
In all, it’s astonishingly confusing, and the end result is that condo and HOA buyers are increasingly having problems getting loans for home purchases. These organizations have created these guidelines in an attempt to protect themselves from imploding financially, but the perhaps unanticipated result is a vast reduction in the amount of loans available for SOC buyers, which in turn depresses the market and hampers the recovery. It’s a big circular mess.
This chart, prepared by a law firm, is an excellent recourse if you want to review the various guidelines of all three agencies. That said, making sure that your association meets these guidelines is going to be a challenge. For many associations who have been harmed by the economy and have had to dip into their reserves or who have significant delinquencies, it will be impossible. Which is a shame, because you’d assume that agencies affiliated with the Federal government would have an interest in actually helping homeowners through our present crisis, rather than putting up barriers to entry into these communities.