FHA has new stricter rules for condos

It sounds like the HOA and maybe even individuals on the board will be held liable with inaccuracies on there FHA condo certification.  Background, for a condo association be eligible for FHA financial for potential buyers each HOA must will out a certification with FHA.

The biggest complaint about the new FHA rules, said Lewis, is the requirement that anyone who signs an application for certification or recertification of a project must assume full responsibility under federal law for the accuracy of every piece of information contained in the submission.

The penalties for subsequent findings that information was inaccurate or omitted can be severe -- ranging up to $1 million in fines and 30 years in prison for the worst infractions.

Since the certification package submission covers myriad items that can be difficult to pin down precisely -- such as the percentage of units currently occupied by renters on a given date, or whether project documents are in full compliance with every state law and regulation -- many association boards and managers are reluctant to stick their necks out to guarantee accuracy of the unknowable under threat of future federal fines.

Currently, 30% to 40% of new mortgages are backed by FHA with only a 3.5% down payment requirement.  It's huge part of the mortgage market since 2008.

As a consequence of these and other concerns about the new rules, recertifications of existing condo projects for FHA mortgage insurance are lagging. An FHA official confirmed to me that just 1,000 of approximately 12,000 projects eligible have done so in recent months -- a no-show rate that critics call ominous.

In response, FHA officials argue that most of the agency's rules track similar requirements in the conventional financing marketplace. Moreover, they say, at a time when condo projects have taken especially hard hits in the housing downturn -- and many projects in places like Florida, Arizona and Nevada have experienced soaring rates of delinquency and foreclosure -- they have a duty to protect FHA's insurance funds against avoidable losses.

Asked whether a calculated phasedown of FHA's condo volume lurks behind the toughened rules, Lemar Wooley, a spokesman for the agency, said "that is not the case. FHA is committed to continuing its mission of providing affordable, sustainable homeownership opportunities while managing and mitigating risk. Our new condo guidance is consistent with that commitment."

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