Condo Media - May 2012 - 57

here they go again — the “they” referring to the Department of Housing and Urban Development (HUD), which has proposed another in a series of regulations affecting community associations and condominium loans. Like the regulations preceding it, this one has not been well received, to say the least. The proposed regulation, announced in February, would prohibit condominium purchasers from paying condominium fees or assessments owed by the seller if they are using an FHA-insured loan to finance the transaction. The purpose, HUD explains in the notice outlining the rule, is to ensure that buyers don’t overextend themselves by paying more than they can afford. The impact on the housing market, HUD concluded, should be “minimal.” But the impact on community associations could be significant, industry executives say, especially in the current market, where many of the owners who need or want to sell have fallen behind on their association payments. Instead of encouraging sales to bolster the housing market, the proposed rule adds another impediment, thwarting some sales that might otherwise occur, according to Andrew Fortin, vice president in charge of government affairs for the Community Associations Institute (CAI). Fortin says the rule also undercuts HUD’s emphasis on the financial stability of community associations, reflected in other regulations barring FHA financing in communities where the delinquency rates exceed a specified HUD minimum (between 15 and 20 percent). Given HUD’s concern about delinquency rates, a rule that eliminates one avenue for collecting overdue payments makes little sense, Fortin contends, noting, “HUD is shooting down a mechanism that addresses its concerns.”

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sary. The buyer’s payment of a seller’s delinquent fees is a “one-off” event, not an ongoing obligation, so it won’t have any impact on the buyer’s ability to afford the loan and make required payments going forward. CAI will express its concerns formally, Fortin says, but the proposed rule provides another example of what he describes as HUD’s “flawed” rulemaking process: The agency publishes proposed rules first and then responds to the criticism they draw, instead of soliciting input in the first place. That’s the procedure HUD followed in developing the controversial condominium certification guidelines, and the agency is still dealing with the continuing blowback from that issue. The certification guidelines, which establish the standards associations must meet for buyers or existing owners to be eligible for FHA-insured loans, have been revised twice and still haven’t been finalized. Fortin says agency officials have said they will again “revisit” the concerns CAI has expressed as part of a formal notice and full comment period, which he notes, “is something we’ve been requesting all along.”

Back to the Drawing Board
The proposed standards for “Qualified Mortgages” and “Qualified Residential Mortgages” have encountered similar problems. The criticism — from real estate industry trade groups, financial institutions and community advocates, as well as from CAI — has been so intense and so widespread, Fortin says, he’s heard agency officials “are going back to the drawing board” on both rules. “That’s a good thing,” Fortin says, “but it adds to the uncertainty in the marketplace.” In the wake of the financial meltdown, HUD and the FHA have been playing “an outsized role” in the housing market — a role that, Fortin says, is both necessary and “appreciated.” But agency policy makers need to do a better job of listening to stakeholders and building partnerships with them, so we can col-

Unnecessary and Counterintuitive
The proposed rule is not only counterintuitive, he argues, it is also unneces-

lectively address our shared concerns about strengthening the housing market and creating a “safe and sound” financial system. While CAI doesn’t have expertise in underwriting standards for mortgage loans, Fortin says, the association knows a great deal about how to measure the health of community associations and about the impact financial regulations will have on them. Unfortunately, at least thus far, he says, “HUD hasn’t been listening to us.” CAI is facing similar challenges at the state level, being forced frequently to explain the unintended negative consequences of laws and regulations proposed by officials who aren’t familiar with condominiums, and don’t understand how community associations operate. One recent example Fortin noted: A law proposed by New Jersey legislators that would fine community associations $500 if their boards fail to obtain FHA certification. Fortin said he explained to the lawmakers sponsoring this bill that the problem is not, as they alleged, that boards are “lazy,” but that HUD’s certification requirements set standards that some associations can’t meet and impose obligations and liabilities that many aren’t willing to accept. That’s why only about eight percent of the associations eligible for FHA certification have obtained it, Fortin told legislators backing the bill. The proposed legislation, he argued, “blames the victims” — community associations — for a problem created by HUD. The bill’s sponsors responded by revising it to impose a fine only on boards that fail to seek certification, not on those that are rejected. But that hardly solves the problem, Fortin notes. Apart from the other concerns that boards and managers have about the certification requirements, he points out, the legislation “requires associations to incur the substantial costs of certification even if they know they won’t qualify.”

Time for an Overhaul?
CAI-New England’s various committees are following (and participating

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Condo Media - May 2012

Table of Contents for the Digital Edition of Condo Media - May 2012
