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Op-Ed: Condos Plan for Lower Loan Limits

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By Orest Tomaselli

The Federal Housing Administration (FHA) recently confirmed the reduction in maximum loan limits, effective October 1, 2011, to $625,500, mirroring the recent announcement made by Fannie Mae. The FHA ceilings will be reduced to $625,500, $800,775, $967,950 and $1,202,925 respectively, for 1-, 2-, 3- and 4-unit dwellings.

With both FHA and Fannie Mae reducing loan limits from $729,750 to $625,500 the same day, a void will immediately be formed. Fannie Mae will no longer buy loans over the limit from lenders and FHA will no longer insure new loans, exacerbating a challenging market for sellers.

Sellers of condominiums priced over $625,500 will need to secure a buyer that can qualify for a portfolio loan (a loan held by the lender that cannot be sold in the secondary market), secure a cash buyer or provide a loan to the buyer themselves. Without competitive lending, the condominium market is vastly reduced. Managers, directors, trustees and HOAs are advised to take steps to make lending available within their developments regardless of price range.

In the higher price categories, lenders of Jumbo loans, e.g., loans of more than $625,500, would now need to hold these loans on their books as portfolio loans. Even though jumbo loans are not sold on the secondary market, Fannie Mae project approval is considered the “Stamp of Approval” for jumbo lenders. In most cases, lenders require a Fannie Mae project approval to consider extending credit to buyers.

Many are concerned that condominiums priced just over the new loan limit will drop their prices to attract FHA and/or Fannie Mae qualified buyers, especially in developments with FHA and/or Fannie Mae project approval. This has the potential to create downward price pressure in this price range, as well as in lower price ranges.

To ensure that units for sale in your condominium can best compete in the marketplace, condominiums are advised to strongly consider FHA and/or Fannie Mae project approval so buyers will be able to sell their unit to a buyer qualified for FHA and/or Fannie Mae loans.

Orest Tomaselli is the CEO of National Condo Advisors, Strategic Inspections. He can be reached at otomaselli@nationalcondoinspections.com.

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