|Re: FHA approval: yes or no?||<– Date –> <– Thread –>|
|From: Raines Cohen (rc3-coho-Lraines.com)|
|Date: Mon, 29 Sep 2014 13:13:35 -0700 (PDT)|
On Sat, Sep 27, 2014 at 5:03 PM, Deborah Carey <boiester [at] gmail.com> wrote: >Can you briefly tell me what the advantages and the disadvantages have been for your cohousing if you decided to get FHA approval? If you decided not to get it, can you tell me if your reasoning was sound, or if you feel now that you should have done so? Deborah - Thanks for checking in with the extended community of cohousing communities for guidance on seeking HUD/FHA approval. I think you'll find lots of different answers depending on when a community was completed; lending policy has shifted a lot nationally since the 2008 banking crisis, and options that were or were not available or worthwhile a quarter century ago have evolved beyond recognition. And the reasons for seeking and maintaining it have changed, as have community demographics. Plus cohousing is a lot more well known, with a track record to be proud of, instead of an innovation facing challenges fitting into existing categories and financial product offerings, so please join me in taking a fresh look. In the golden days before 2008, FHA approval was a relatively easy process, often delegated to to lenders in the field and not rigorously reviewed; some communities found that their right-of-first-refusal clauses and other resale restrictions in their documents prevented approval; with a large competitive lending market, it was often deemed not worth pursuing. In the last half decade, as banks got out of risky businesses like actually issuing and holding loans to homeowners (the whole field has become a game of "hot potato"), the federal government became a primary backer of most residential mortgage loans, rather than "lender of last resort." As a result, the process was tightened and HUD took steps to reduce risks - to make its government-backed loan pool more secure. Until this year, many cohousing seeking FHA approval found that the tightened review process, including web searches, resulted in their being identified as cohousing condominiums (whether or not the word was in their legal name). HUD is in the process of rebuilding the regulatory framework for the program since Congress moved it to a different section of law, and cohousing was apparently in the pile of "stuff we don't understand and will figure out later, so the answer is 'no' until we do". We ran into this issue here at Berkeley (CA) Cohousing when seeking FHA approval for our community, so that my neighbor Alice could get a reverse mortgage and stay in her home, while living on a small fixed retirement income. The most common and lowest-priced reverse mortgages, which let seniors access their home equity and receive payments so long as they continue to live there, are known as "Home Equity Conversion Mortgages," or HECM loans. Lenders can make these loans with confidence, knowing that for FHA-approved condominium neighborhoods, the Federal backing means that they won't be on the hook for more than the home value. FHA mortgage insurance, tacked on to the price of loans, provides the pool of funds that makes this possible. But to "fit the box," your condo has to meet a number of requirements, allowing HUD and its lenders to treat it as a commodity that they can be confident of selling at market rates, without encumbrance. Because HUD had marked our community as cohousing, Alice's application for community approval was refused. HUD wouldn't proceed to legal review of our inclusionary zoning agreements with the city (see below), so we couldn't get the guidance needed to get the city to fix them. I ended up meeting the Housing Commissioner (who it turns out knows people living in cohousing), organizing a petition drive (with support from many partners including PEERS, change.org, Coho/US, and Partners for Affordable Cohousing, with an Aging in Community website presence), getting over 10,000 signatures in one weekend, and national policy has shifted, and our application has moved forward, after we met with HUD staff in DC. We still have to work out some errors in the city's drafting of our documents before we re-apply, so we're in that process now. Other members of our community are getting older and now interested in exploring the options this could open up for us, but some are concerned about what happens after a member passes, and their home is foreclosed upon, or sold by the estate. Some of us are exploring whether and how we could create an alternative pool of funds that could privately finance reverse mortgages in cohousing, so that the interest/return could stay in community rather than flowing to outside lenders. Of course, FHA approval can also ease the way to members who qualify getting low-downpayment loans, potentially increasing your community's economic diversity. So there may be benefit to getting FHA approval, the same as there would be in getting LEED Certification, but it's also worth looking at community approaches that can deliver equivalent or alternative benefits using different approaches. You also wrote: > Could you also tell me if the community in which you built had requirements for low income units? This is a separate issue, one of what's called "inclusionary zoning," with policy set on a town/county basis, sometimes under pressure/guidance from states, but it does have effects on FHA approval. My home community was created between 1994 and 1997, incorporating several existing homes and adding several new ones. Because we were taking existing rental homes off the city's rent-controlled market, our project would have been subject to condominium conversion fees, designed to preserve affordable rental housing. At $37,000 per unit, these fees would have raised our prices out of reach of many of our members, who would qualify as "moderate income" residents eligible for some forms of assistance. Instead, our community's founders helped draft changes to the city's inclusionary housing law that exempted communities that remained "permanently affordable" - in our case, with home prices starting at our market prices but for 30 years capped to only increase as area incomes did, and with the city reviewing the income of each new buyer to verify that they made no more than 150% of area median income. So to answer your question, yes, 100% of our homes are "limited-equity condominiums" priced at below-market rates with income qualifications. This may be part of why it's been 11 years since our last resale. Raines Cohen, your Cohousing Coach and Community Organizer Cohousing California / East Bay Cohousing back in DC this week for an EcoDistricts summit and citizen lobbying on the Hill on "Aging in Community" with "Beacon Hill" Village Networks PS When Ann asked where your community is, I believe she was just trying to encourage your participation in list etiquette, which asks people to identify their community and its location so we can give advice that is relevant for your context. For instance, your approach might be different in a high-demand, high-priced "hot" housing market vs. one where minimizing cost is most important, where many members would be struggling to afford buy-in for your community, and might be more interested in different programs including lower-cost loans; plus, state laws and financing programs vary, and some might give you advantages based on FHA approval. Plus, the best marketing/recruiting advice I've heard is: never pass up any opportunity to promote your commute and attract new members, whether for initial purchase or resale.
FHA approval: yes or no? Deborah Carey, September 27 2014
- Re: FHA approval: yes or no? Ann Zabaldo, September 27 2014
- Re: FHA approval: yes or no? Raines Cohen, September 29 2014
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