The latest FHA condominium guidelines eliminated the two main reasons the public quit buying condominiums,

1. They couldn’t afford the down payment

2. They lost confidence in the association’s financial status

Condominiums that received FHA approval soon learned that approval alone was not enough to draw buyers. Lack of confidence in the financial stability of association fees and reserve accounts kept buyers and Realtors away as well.

The new guidelines call for FHA-approved condominiums to be financially stable and require the mortgage lender to approve the association budget, reserve account and more.

This is exactly the policy needed to boost confidence in condominium association finances. Lenders may resist it because it will be more work for them, but it is a great idea.

Condominium buyers can purchase knowing that their lender has reviewed the association’s financials and found them to be mortgage worthy.

We owe the FHA our thanks, but we owe the Community Association Institute (CAI) a standing ovation.

CAI is the one organization in this country that exists to protect the interests of people living and working in community associations.

It lobbied for strong financial controls within condominium associations and the FHA listened.

Not only can the buyer purchase with only a 3.5 percent down payment, the mortgage lender must review the reserves, and make sure the insurance policy is current. CAI is the national voice of association-governed communities, which include homeowners associations, condominiums, cooperatives and other planned communities.

According to its website:

• The estimated real estate value of all homes in community associations approaches $4 trillion, approximately 20 percent of the value of all U.S. residential real estate.

• The total annual operating revenue for all community associations in the U.S. is more than $41 billion. Most of this is spent in associations' local economies for goods and services.

• Community association boards also maintain investment accounts of more than $35 billion for the long-term maintenance and replacement of common property.

• Homeowners associations and other planned communities account for 52-55 percent of the totals above, condominiums for 38-42 percent and cooperatives for 5-7 percent. In all, this represents an estimated sixty million owners in twenty-four million housing units located in more than 300,000 communities.

• Forty percent or twenty four million are condominium owners living in an estimated ten million units, within 120,000 communities.

The one advantage CAI has over other interest groups fighting for their members is that they focus on policy that does not cost the taxpayer, yet directly affects the marketability of the community. The National Associations of Realtors, Homebuilders, and Mortgage Bankers are hammering away at ways to make their products simpler, less expensive, or easier to sell. The National Association of Homebuilders fought unsuccessfully for a thirty percent presale requirement instead of the fifty percent presale requirement now in effect. They lost that battle but not the war.

The fifty percent presale requirement will not sound the death knell for condominium projects as some have claimed.

A more conservative presale approach will give commercial lenders more confidence in closing projections. Pricing strategies and incentive promotions can help build urgency within the framework provided. There are other pending issues that the industry will continue to push HUD to permit, but with the two fundamentals now in place—financial integrity and presale stability—the issues should become more realistic on both sides. Everyone including HUD and the FHA wants to see the condominium market reach the sales momentum corner it so desperately needs to turn.

I for one am ready, after leaning on President Obama in past columns about the condo mess, to support HUD and the FHA to encourage them to keep listening. We can expect the National Association of Homebuilders to continue to fight for liberal presale and other sales-friendly requirements, and for lenders to fight for their interests.

As Realtors come to understand and see the sales impact that good management and financial stability means to the value of existing condominiums, they will tend to take harder looks listing and selling opportunities within the condominium community. The stroke of a pen changes interest rates, presale requirements, and down payment requirements, but the reputation for good management and a stable financial condition comes with time. No matter what other issues must be addressed, it is comforting to know that, if "FHA approved" financial stability of its condominium association will not be one of them.

"We are pleased to have this opportunity to work with FHA and other stakeholders on this critical issue," said CAI Chief Executive Officer Thomas M. Skiba, CAE.

"This is just the first step to correcting the historic challenges in the condominium market. More needs to be done and we will continue to do everything we can to restore confidence in housing and protect homeowners and homebuyers." Well said. And well done.

Published: January 7, 2010

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David Fletcher has been a Florida real estate condominium and new homes broker for 30 years with more than $3 billion in new construction sales. In 2008, Keller Williams Realty International named him a "Lifetime Achiever." Along the way he has chaired the Florida Homebuilders Associaiton Sales and Marketing Council, trained thousands of general agents and on-site agents to work together, and was a featured speaker at the National Association of Realtors. Recently he founded New Homes Niche, a builder-certified co-broker training system "to meet the growing trend we see in short sale buyers moving to new homes for a lot of reasons." Call David at 407 234 2349, , and visit his website.