Condo Media - December 2011 - 51

by Nena Groskind

{CONSEQUENCES}
UNINTENDED
QM Rules for Lenders Could Affect Community Associations
Liability Concerns
It is the treatment of association assessments that has attracted the Community Associations Institute’s (CAI) interest and ignited its concern. CAI is concerned specifically about the liability risks the rule may create for homeowner association boards and managers, who will be asked to provide the assessment information to lenders. CAI also is concerned, more broadly, about the discriminatory impact it thinks the rule will have on condominium owners and prospective buyers. The discrimination concern arises because the proposed rule would require lenders to consider in their repayment calculation not just the periodic common-area assessments owners pay monthly, but also the special assessments that boards might impose—both those currently in effect and those that might be levied in the future to finance capital replacement projects or repairs. Special assessments for condominium owners are the equivalent of the unanticipated expenses that owners of single-family detached homes might incur, notes Thomas Skiba, CAI’s chief executive officer, in a comment letter ndustry executives concerned about the impact of financial industry regulations on community associations can add another one to that growing list. The sweeping federal financial reform legislation (DoddFrank) Congress enacted last year includes a provision requiring mortgage lenders to verify that borrowers have the “ability to repay” the loans they obtain. On its face, that requirement seems to reflect nothing more than a common-sense approach lenders should have been following all along. But the details of this regulation threaten to be devilish for those who own condominiums or would like to purchase them. Lenders will be able to comply with the ability to repay requirement by originating “qualified mortgages,” which the Consumer Financial Protection Bureau (CFPB) is in the process of defining. The standards this newly created agency (also a product of Dodd-Frank) is considering would include in the repayment calculation: The borrower’s monthly principal and interest payment, property taxes, insurance costs and homeowner association assessments.

I

CAI submitted to regulators earlier this year. The only difference, Skiba says, is that in a condominium, these expenses are apportioned among many owners. “Every homeowner faces unanticipated costs from time to time,” Skiba argues, but the proposed regulations target only the special assessments in condominium communities. Including them in the ability to repay calculation for condominium loans “will greatly distort mortgage debt and could redline entire communities,” CAI argues. Because special assessments are, by their nature, temporary, the institute suggests, the rules should allow lenders to set higher debt-to-income ratios for borrowers in communities that have special assessments in place.

Impossible Speculation
The rules also require lenders to consider how assessments that might be approved in the future would affect a borrower’s repayment ability—requiring lenders, boards or managers to predict the need for future assessments and estimate their size. “Community association boards, community association managers, community association

CONDO MEDIA • DECEMBER 2011

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Condo Media - December 2011

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