Condominium owners in buildings that are not approved for Federal Housing Administration lending may soon be able to obtain “spot loans,” which the agency banned nearly four years ago, Inman News reported April 8.
Spot loans are those approved for a single unit in buildings where condo associations have decided not to apply for FHA approval. The FHA allowed spot loans from 1996-2010, but lacked sufficient monitoring and quality control, which allowed developers and loan officers to take advantage of the program. The fraudulent activities led the agency to ban such loans.
However, increasing pressure from the National Association of Realtors and the Community Associations Institute, among others, is forcing the FHA to reconsider its policy, Inman News reported.
The ban has been particularly hard on moderate income, first-time and minority homebuyers, as well as on homeowners looking to take advantage of the FHA’s home equity conversion mortgage that allows them to tap their home’s equity for income.
The spot loan prohibition has affected the sales prices of condos, particularly when buyers need to use the low down payment option offered through FHA loans but are unable to do so because the condos aren’t located in FHA-approved communities, Inman News reported.
The FHA claims it has better controls in place and, if it reintroduces the spot loan, it will institute much stricter qualifying standards.
Philip J. Sutcliffe, owner of Project Support Services, a firm that helps owners and developers navigate the FHA approval process, told Inman News that he believes reintroduction of spot loans would be a mistake. He said that if the program was to return, however, the FHA would have to ensure that condos undergo the same level of review that the FHA employs for whole buildings — a task that could dramatically reduce spot approval times.