Effective immediately, the Federal Housing Administration will no longer require approval of an entire planned unit development as a precondition for insuring mortgages on houses in that particular project.

The change was called a "major step forward" by David Ledford, staff vice president for housing finance and housing policy at the National Association of Home Builders, who said it "should really open up the new home market" to FHA financing.

The new policy was announced here last week by Secretary Mel Martinez of the Department of Housing and Urban Development at the NAHB's annual convention, who told the 205,000-member group's board of directors it was in line with the Bush Administration's goal of removing regulatory barriers that restrict development of affordable housing.

Under the old rules, the FHA subjected large-scale planned developments to lengthy reviews sometimes lasting several months -- which are not required by the Veterans Administration or Fannie Mae and Freddie Mac. Moreover, the agency's guidelines and requirements did not address recent trends in planning which often combine for-sale and rental housing and shared amenities.

"One of the major reasons the FHA has such a small share of the new home market is that the rules did not address these more complicated kinds of subdivisions," said Ledford,

Last year, the agency approved 10,400 planned developments, according to a HUD spokesman. But developers of projects which "do not fit the traditional mold envisioned by the FHA PUD procedures" frequently decide not to seek FHA approval because of repeated bureaucratic delays, Ledford reported.

If a builder decides not to obtain FHA approval, then buyers cannot use FHA financing, he explained. "It's been a big problem."

According to FHA Commissioner John Weicher, the agency insured mortgages on 103,000 newly built homes in fiscal 2002. That's less than one in ten of the loans the agency backed during the period.

The change has been a long-time priority of the builder-broker lobby.

"NAHB has worked closely with HUD to remove this impediment to individual home buyers seeking mortgage insurance in planned unit developments," said Gary Garczynski, a Northern Virginia developer and last year's NAHB president. "This action should significantly boost FHA insurance of mortgages on new homes, creating new opportunities for families to use FHA-insured loans to achieve the dream of homeownership."

Published: January 29, 2003

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