For developers and condo associations concerned with an FHA policy that would make it harder get condo loans, HUD has offered a one-year reprieve.

Earlier this week, David Stevens, assistant secretary for housing at HUD, released a memo that waived a clause, which made condominiums that place restrictions upon conveyance unable to receive FHA approval.

“The waiver was issued to allow condominium projects to receive FHA approval even though the condominium project may restrict leasing of units by units owners,” says HUD spokesperson Lemar C. Wooley.

Solving a Problem
The FHA’s change comes after developers and industry consultants told Multifamily Executive that in two of its four regional offices, it has started enforcing a long dormant rule that prohibited restrictions on transferring a unit. If the complex placed restrictions on transferring individual units, it would have been removed from the list of FHA-approved buildings.

Of course, to comply with FHA rules that limited the number of rental units in a property to no more than 50 percent, developers must limit the transfer of units so that investors don't own more than half of the total units available. That created a conflict for developers.

“If the FHA begins to truly enforce that guideline, you’re going to have to make the choice,” says Kevin McDaniel, senior vice president of condominium operations of the Atlanta-based Novare Group told Multifamily Executive last month. “Do you want to take all restrictions out and play to the FHA? Or do you leave them in?”

By changing their rules, Stevens said the agency hoped to achieve “proper governance of a condominium project by protecting against transient tenants and real estate speculators, both of which could have a negative impact on the market value of units in the project.”

Good Reception
The policy was greeted with approval from industry watchers. “It is important because it will make it possible for many more people to get FHA loans that were looking to buy in buildings where they had some type of leasing restrictions,” says Jack McCabe, founder and CEO of MR&C, a real estate consulting firm based in Deerfield Beach, Fla.

Grant Stern, president of Bay Harbor Islands, Fla.,-based Morningside Mortgage Corporation, did express concern with one clause that said the “association may not require that tenant be approved.”

“Does that mean the FHA will not approve any condo project which screens tenants?,” he asks “If so, this could disqualify nine out of 10 projects from the FHA pool.”