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Old 12-01-2011, 06:07 PM
 
8 posts, read 56,201 times
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Hi there,

Our HOA is looking into creating rental restrictions most likely a cap of how many units be rented out at any given time. They forwarded a paper written by a law firm that included the following statements:-
  • The maximum rental ratio for lending that has been set by both the FHA and Fannie Mae is not to exceed 20%
  • Secondary mortgage participants such as FHA and Fannie May require community associations properties to have a minimum of 51% owner-occupancy with no more than 20% of the units rented
  • Similarly unit mortgage re-financing face the same litmus tests. As noted, for example, FHA regulations provide that not more than 20% of the units in an established condominium or town home property can be leased
We are not a FHA approved building so those particular owner-occupancy ratio restrictions would not apply but I’d like to confirm the information regarding Fannie May as I couldn't find anything online that confirms this. When I spoke to my lender he recommended an rental-owner occupancy ratio of 30% which is necessary for mortgage insurance for conventional loans that have a deposit of less than 20%.

I actually think that rental restrictions would be beneficial but would prefer them not to be unnecessarily restrictive as this can put off potential buyers and having some flexilibity would be useful should personal circumstances change.

Appreciate any help, thanks.
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Old 12-02-2011, 06:07 AM
 
Location: MID ATLANTIC
8,674 posts, read 22,908,228 times
Reputation: 10512
Fannie as a general rule permits 30% to be rentals, but we now use something called Condo Project Manager (computer) that tells us if Fannie will do a loan in the project. This is where the underwriter keys in information provided in a questionnaire by the management company and we get a CPM approval. There can be some variation in those numbers, too many to list, so the overall number you were give of 30% would be dead on, in my opinion.

I find it interesting that an existing project is rewriting such substantial changes. Such changes, changes to the title that run with the ownership, typically require 100% acceptance by all of the homeowners. I've yet to see 4 homeowners agree on anything, let alone an entire condo project. This is why these restrictions are usually successful only that the time of creation.

What percentage of acceptance is this attorney telling your association you need? If it's 100%, they've got an uphill battle. Once it's imposed, it can't be undone. If someone was transferred on the job and the project was at 100% of permitted rentals, that HOA just sanctioned the ruin of one family. On the flip side, why should the values of the homes go down because others couldn't or wouldn't sell?

You're right, some would see this as overly restrictive. I personally would never buy where that restriction was imposed. But there would be those that would see this as an insurance policy on the future values. We have unapproved condos in our area, in gated communities, that have lost their approvals for delinquencies in dues, which created a run on rentals and now the values are down over 50%.

Tough decision.
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Old 12-02-2011, 07:24 AM
 
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The other issue is that the % is a moving target. Could be 30% this year. 10% the next and 50% down the road.
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Old 12-02-2011, 06:26 PM
 
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Hi, thanks for the response. I thought that a change to the bylaws would only require 67% majority?
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Old 12-02-2011, 07:07 PM
 
Location: MID ATLANTIC
8,674 posts, read 22,908,228 times
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Quote:
Originally Posted by maccy_m View Post
Hi, thanks for the response. I thought that a change to the bylaws would only require 67% majority?
Each state is different. Here, in VA, if you create a change that runs with the land or title, all owners must agree. There are some things that require a 50% quorum, somethings require a 3/4 majority and some require an affirmative vote from every homeowner. This is not the same as saying you can't put a decoration in the window or adding improvements to the clubhouse, so I am assuming it would fall under the thoughest to get approved here. You will be dictating what owners that have been there since day one can do with their property.

Your state will vary, ask the attorney how many votes they need.

Last edited by SmartMoney; 12-02-2011 at 07:19 PM..
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Old 12-04-2011, 11:35 AM
 
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Is the 30% rental-owner ratio for FNMA/FHA documented anywhere online?
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Old 12-04-2011, 06:31 PM
 
Location: MID ATLANTIC
8,674 posts, read 22,908,228 times
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Quote:
Originally Posted by maccy_m View Post
Is the 30% rental-owner ratio for FNMA/FHA documented anywhere online?
Not any longer, or at least any I could find - we use to have CondoTypes A thru F (and prior to that, Types I, II, III) and one of those types called for no more than 30% investor concentration. When Fannie introduced PERS (new construction) and CPM (resales), those categories went away and were replaced with artificial intelligence. Think of Condo Project Manager like a credit score - a constant moving target. Fannie has an algorhithm, that when the lender keys in the correct answers found on a questionnaire the lender sends to the property manager, the computer spits out a CPM approval. Is CPM rejecting properties with over 30% investor concentration? It's rather hard to say, we need someone that sees more condos cross their desk than TH or SFD. It was my understanding this process was introduced, so that a "perfect" condo wasn't disqualified because a condo was off by one investor unit and had minimal delinquencies and great reserves. However, I would expect to see a decline with a 40% investor concentration and 13% delinquencie rate. This is just one more area where the computer has once again dominated lending. (Note: There are cases where the lender can certify on a manual review, but the lenders willing to do this are really thinning).
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Old 12-05-2011, 03:01 PM
 
4,463 posts, read 6,227,120 times
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Quote:
Originally Posted by maccy_m View Post
Hi there,


Our HOA is looking into creating rental restrictions most likely a cap of how many units be rented out at any given time. They forwarded a paper written by a law firm that included the following statements:-
  • The maximum rental ratio for lending that has been set by both the FHA and Fannie Mae is not to exceed 20%
  • Secondary mortgage participants such as FHA and Fannie May require community associations properties to have a minimum of 51% owner-occupancy with no more than 20% of the units rented
  • Similarly unit mortgage re-financing face the same litmus tests. As noted, for example, FHA regulations provide that not more than 20% of the units in an established condominium or town home property can be leased
We are not a FHA approved building so those particular owner-occupancy ratio restrictions would not apply but I’d like to confirm the information regarding Fannie May as I couldn't find anything online that confirms this. When I spoke to my lender he recommended an rental-owner occupancy ratio of 30% which is necessary for mortgage insurance for conventional loans that have a deposit of less than 20%.

I actually think that rental restrictions would be beneficial but would prefer them not to be unnecessarily restrictive as this can put off potential buyers and having some flexilibity would be useful should personal circumstances change.

Appreciate any help, thanks.
Could you forward me the legal proposal that HOA is using, I would like to propose this to our association and make it retro active as its preventing people like myself from selling and it will eventually run everyones property value into the ground.
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Old 12-05-2011, 08:07 PM
 
8 posts, read 56,201 times
Reputation: 11
That makes sense and at least that might explain the range of values from my research. So far this is the information I've found:-

Our HOA

FNMA - 20%
FHA - 20%

1st Law Firm

FNMA - 51%
FHA - 50%

2nd Law Firm

FNMA - No Limit if primary/secondary residence
FHA - 50%

Just so you know I'm not part of the HOA and have a neutral stance towards rental restrictions but from the sounds of it, it makes sense to have a 30% limit. What are your thoughts? The concern is that if you have too many rentals you actually limit the number of people that would be able to qualify for a loan so maxing out rentals to 30% protects property values and helps owners to be able to sell. Would you agree with this statement?
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Old 12-06-2011, 05:07 AM
 
Location: MID ATLANTIC
8,674 posts, read 22,908,228 times
Reputation: 10512
Quote:
Originally Posted by maccy_m View Post
That makes sense and at least that might explain the range of values from my research. So far this is the information I've found:-

Our HOA

FNMA - 20%
FHA - 20%

1st Law Firm

FNMA - 51%
FHA - 50%

2nd Law Firm

FNMA - No Limit if primary/secondary residence
FHA - 50%

Just so you know I'm not part of the HOA and have a neutral stance towards rental restrictions but from the sounds of it, it makes sense to have a 30% limit. What are your thoughts? The concern is that if you have too many rentals you actually limit the number of people that would be able to qualify for a loan so maxing out rentals to 30% protects property values and helps owners to be able to sell. Would you agree with this statement?
I admire what you are trying to do, but the range really will be exhausting. There are also what's called investor overlays, or lender requirements over and above what Fannie and Freddie state. FHA is FHA wherever and has always been consistent at 50%. You might try to do a google search on "condo approval specialists" and talk to some of them. But, I'm fairly confident you won't find a hard number for Fannie.

Quote:
Could you forward me the legal proposal that HOA is using, I would like to propose this to our association and make it retro active as its preventing people like myself from selling and it will eventually run everyones property value into the ground.
Making something like this retroactive is exactly why it may require more than a simple majority.

Losing the ability to finance costs 10's of 1000's - we see it every day. Speaking to a condo specialist would also be a benefit, and some specialize in monitoring the condo to make sure it never falls below acceptable levels to obtain FHA approval.
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