Orlando Business Journal – by Christopher Boyd Staff Writer
New Federal Housing Administration rules promise relief for some badly stressed condo projects — but mortgage and real estate brokers said the impact could be short-lived.
The changes are important, though, because condo prices have plunged from speculative highs in 2006, with units in many buildings now selling for a quarter of what they cost back then. As lenders watched values shrink, they became reluctant to finance sales to anyone without a big down payment — typically 20 percent or more.
That has left some new condo towers in downtown Orlando relatively empty, with some deciding to lease out unsold units.
“Given how hard it is to get financing, this certainly will help the condo market — but it won’t set it on fire,” said Joe Nunziata, CEO of FBC Mortgage LLC in Orlando.
The metro Orlando condo resale market has 2,873 unsold units. In downtown Orlando, just 118 condos were resold this year through the end of October, for an average of $153,859 per unit, said the Orlando Regional Realtor Association.
The revamped guidelines are temporary and would benefit only condo developments with a limited number of investor-owned or foreclosed units. Nonetheless, they offer potential relief for some sellers after a long period when financing has been difficult to find.
Among the temporary changes:
• FHA loans would require down payments as small as 3.5 percent of the sales price.
• The guidelines extend the amount of time lenders have to submit so-called spot loans, or loans on individual condo units in buildings that don’t have overall FHA loan approval, to February. Spot loans were supposed to go away in December.
• The rules increase from 30 percent to 50 percent the units in a condo project the FHA will finance.
• The FHA will finance buildings in which just 30 percent of new units have been sold. Private-sector lenders generally require sales of 70 percent or more.
• The FHA will offer financing to all the units in a project if all of them have been sold, no single entity owns more than 10 percent of them, a homeowners association operates the project and owners occupy half of the dwellings.
The looser new rules take effect Dec. 7 and remain through the end of next year, when they likely will become more restrictive.
Lindsey Pfaeder, sales and marketing manager for the Vue at Lake Eola condo tower in downtown Orlando, said her building is seeking FHA approval to create a financing channel for its unsold units. The developer has sold 210 of the building’s 375 units.
“It is nearly impossible to get conventional financing, even if a buyer has $1 million and can put 80 percent down,” she said. “We all have buyers for condos, but they can’t buy because of financing.”
Less-restrictive FHA rules could mean more sales and increase the potential that conventional lenders would provide financing on the remaining units, said Pfaeder.
Ernst Urbainczyk, an agent with Keller Williams Heritage Realty in Lake Mary, said the revisions could stimulate sales, but the prospect that they’ll change again is a drawback. “If I buy a condo today under these FHA rules and the rules change, where will I find a buyer two years from now when I want to sell it?”
Marcus Burke, owner of the Condo Metropolis brokerage in Orlando, said another FHA requirement, which demands at least half the units in a building be owner-occupied, will limit the number of eligible condos. “A lot of older buildings won’t qualify because so many units are foreclosures or delinquencies.”
Cristian Michaels, an agent with Re/Max Town Centre in Orlando who specializes in downtown condo towers, said price is another problem. Even with the new rules, the FHA won’t finance units costing more than $400,000, which are still fairly common despite the plunge in prices. “I don’t think it will increase our sales because of the price points.”
