Lack of access to Federal Housing Authority mortgage loans continues to inhibit growth of Miami’s existing condominium market.
That’s according to a recent report released by MIAMI Realtors, which noted that of the 9,307 condominium buildings in Miami-Dade and Broward counties, only 13 were approved for Federal Housing Administration loans, down from 29 last year, according to Florida Department of Business and Professional Regulation and FHA.
“I think the number is even lower today — it should be about eight right now,” said Danielle Blake, chief of public policy for MIAMI Realtors. “It’s due to a number of factors, and we’ve tried to get to the bottom of it. We even met with [Department of Housing & Urban Development] Secretary Ben Carson after starting a task force in 2014, but it didn’t go anywhere after that.”
Unique to Florida
Financing a condo in Florida is a challenge for many potential buyers who may not realize that not only do they need to have all the credentials to qualify for a home loan personally, but the condo project itself must also undergo approval for mortgage lending. Underwriters are concerned about the financial stability of the condo project especially with regards to hurricane coverage, and that’s where the trouble lies. “If you have a partial loss, which almost all claims for hurricane are partial, you agree to come out of pocket to a certain percent,” Blake said. “If you have a coinsurance clause, you have to prove that there’s enough in the condo building’s reserves to cover it 100%. But in Florida, condo owners are allowed to waive reserves by a majority vote on an annual basis.”
According to Blake, Florida’s high concentration of elderly condo owners don’t want to put money into a reserve account because they think they may not be around to use it. So, many associations opt for special assessments instead of collecting monthly reserves.
But by doing that, they’re making it difficult if not impossible for potential buyers to get an FHA loan or even a conventional loan. With conventional financing, the condo project must pass a full review by underwriting, and the review process includes a questionnaire to be completed by the homeowner association about budgets, reserves and insurance requirements among other items.
Even among the few condo buildings in Miami that are FHA approved, lenders still have to obtain a full condo questionnaire in order to meet FHA requirements, noted Anthony Askowitz, broker-owner of RE/MAX Advance Realty. And all too often, even those buyers run into a another stumbling block.
“Insurance is definitely one of the problems, but another one is occupancy, certain ratios of renters to occupants that the building has to maintain,” Askowitz said. “That’s another way potential buyers may not qualify.”
Meanwhile, the return of spot loans, which went into effect in October 2019 and allows for single-unit FHA mortgage approvals, provides more flexibility with owner/occupancy ratios, has not generated increased homeownership opportunities that many had hoped for, because they didn’t address problems unique to Florida. “Even with a spot loan, they want to see reserves of 10%,” Askowitz said. “Buildings that have a vote and say, ‘Let’s not have reserves at all,’ may not be thinking about what they’re giving up, which is a major group of buyers.”
Miami’s homeownership problem
“Whether it’s eight or nine or 10 FHA-approved condos in Miami, effectively it’s really zero,” Askowitz said. “It’s really sad because condos represent 70% of our housing here in Miami, and not having access to FHA loans really limits their purchasing power. And an FHA buyer is a great buyer with great credit and they’re capable of buying with very little money. By not holding onto 10% of reserves, condo boards are not only prohibiting the sale of units in their building, they’re also suppressing the rate of homeownership in Miami.
Greater Miami has a high proportion of renters who make up more than 40% of the metro’s households. Currently ranking as the seventh least-affordable large metro in the world, with a large inventory of expensive housing and not nearly enough affordable housing, the path towards homeownership in Miami for medium- to low-income earners has grown increasingly difficult and threatens the region’s long-term economic prosperity. “Let’s say for argument’s sake we have 13 FHA-approved condo buildings in Miami,” Blake said. “Well, we’re not going to tackle workforce housing with 32 units.”
What lies ahead
Miami’s resale condo market is expected to take yet another hit post coronavirus. “Demographics are changed by events,” Askowitz said. “Hurricane Andrew is a perfect example of this — many people left Miami afterwards. And I think after this, people living in condos are going to want their own space. What you’re going to find is that people have discovered that they do not want to share an elevator going up and down. A lot of people may want that single family home after this.”
In the meantime, condo owners looking to sell are struggling with yet another hurdle — showing their properties to potential buyers. “A lot of condo associations will not even allow someone to show their property right now,” Askowitz said. “If the building won’t let you in to show it, it’s a difficult hurdle to overcome.”
As condo buyers and their agents work to find creative solutions to condo financing issues, industry experts say educating homeowner associations and condo boards is key to instilling change. “When condo boards remove that 10% of reserves, they need to know they’ve cost themselves not only potential buyers, they’re also lowering the value of their properties,” Askowitz said.