Article Courtesy of The Sun Sentinel

By Paul Owers

Published November 28, 2011 

See if your condominium is approved for FHA mortgages at http://www.SunSentinel.com/fhacondos  

Sellers of South Florida condominiums, buffeted by the devastating housing downturn, are bracing for another blow caused by prospective buyers' problems getting mortgages. 

Buyers who want loans backed by the Federal Housing Administration are being shut out of buildings that no longer qualify for FHA financing. That likely will slow the region's recovering condo market and keep prices depressed in buildings not approved for FHA loans, analysts say. 

The issue is a recent government requirement that condo developments get approved every two years for FHA-insured morgages. Before that, only periodic approvals were required. 

Buyers like FHA mortgages because they require down payments of only 3.5 percent, compared to the 20 percent of conventional loans.

Lorrelie Manuel, 30, is looking for a three-bedroom condo in Broward County that she plans to share with her mother, Rosalie. They need FHA financing because they don't have thousands of dollars saved for a down payment, but it's been difficult finding buildings in which she can get an FHA mortgage.

"There are not a lot of options," she said. "It's been very frustrating." 

Meanwhile, Justin Cecere and his wife are trying to sell their Coral Springs condo because they want a bigger home so they can start a family.

Only after they received full-price offers for the three-bedroom unit did they realize that the building, Cypress Glenn Townhomes, had lost its FHA designation in July. As a result, the couple had to turn down the offers because the buyers needed FHA loans.

Cecere said he brought the issue to the condo board, which resubmitted the necessary paperwork. But it's been more than three months, and Cecere said the building is still waiting for an answer.

When real estate agents call about the unit now, Cecere, 31, tells them up front that buyers needing FHA financing better look elsewhere.

"I firmly believe that if we had FHA approval, we would have sold it already," he said.

FHA designations were scheduled to expire on more than 25,000 condo buildings nationwide as of the end of September, and only about 8 percent of those projects have been reapproved for the government mortgages.

The Department of Housing and Urban Development, which oversees FHA, couldn't say how many South Florida condos no longer qualify for FHA loans.

But a partial review by the agency of 162 condo buildings in Broward and Palm Beach counties shows that three quarters have expired approvals. About 90 percent of nearly 600 Miami-Dade County buildings no longer have the designation.

The housing collapse over the past six years has sent condo prices plummeting by more than 60 percent across Broward and Palm Beach counties, according to the Florida Realtors trade group.

In buildings that have lost FHA designations, "it'll be more challenging for prices to appreciate because only certain people can buy in there," said Louis Spagnuolo, vice president of mortgage banking for WCS Lending in Boca Raton.

South Florida condo sales are on a blistering pace in 2011, but the lack of FHA loans in some buildings will hold up more deals, said Ryan Paton, president of Capitol Lending Group in Fort Lauderdale.

Most of the transactions this year are cash sales from investors, who are unaffected by the FHA requirement. Many investors are renting the units, making for buildings full of absentee landlords.

"The ultimate, final housing recovery will depend on owner-occupants taking possession of these units," said Brad Hunter, South Florida director of the Metrostudy research firm in Palm Beach Gardens. "Without FHA certification, that's a significant hindrance."

The lack of FHA mortgages not only penalizes buyers and sellers, but also existing owners in affected buildings, said Debbie Reger, a loan officer with Academy Mortgage in Boca Raton.

Many of the would-be sales involve vacant units, and until they're sold nobody is paying homeowner association dues, Reger said. In some cases, existing owners are forced to pay more in dues to cover the shortfall. 

Some buildings know they can't get reapproved for FHA loans now because they're financially troubled or have too many investor-owned units, according to a HUD spokesman.

Other condo boards have decided they don't want FHA loans in their buildings because those borrowers tend to be less financially secure than those with conventional loans, industry officials say.

But Spagnuolo and others say most condos simply aren't aware that they've lost FHA financing approval. It's a complicated issue for condo associations, which often are run by volunteer board members. 

California Courts, an 80-unit condo in Weston, lost its FHA designation this summer, according to the HUD website. Melody Lavrich, recent past president of the condo association, said board members didn't know the FHA approval was expiring.

"It never came up," she said.