Mortgage Matters: The Waiting Game

Aug 18, 2011

CAI members know that during the course of 2011, the federal government is restructuring the entire mortgage finance system.  This means that the rules for who gets a mortgage, for what type of home, and in what type of community will dramatically change and impact the housing market and community associations for years to come.  CAI has been working to ensure that the rules which will eventually be adopted provide for fair treatment of lending criteria that apply to community associations. Over the course of the summer, CAI submitted comments on two pending regulatory proposals governing Mortgage Matters logomortgages. While dealing with pending regulations is not necessarily the most interesting of tasks, the stakes for community associations could not be higher.

In July, CAI submitted comments on proposed regulations governing “Qualified Mortgages,” or QM for short. These regulations will set standards for a borrower’s ability to repay their mortgage. The proposed regulations require that a lender look at more than just the principal mortgage payment and include mandatory fees like insurance and association assessments as part of the lending decision. In part, this is good news for community associations as buyers will be evaluated on their ability to pay the mortgage and their association assessments, a factor that is often overlooked. Having assessments as part of the lending decision should help to reduce assessment delinquencies. However, on the down side the proposed regulations will allow lenders to rely on third parties, such as community association management companies or association boards, when verifying the assessment levels in a community. If the information provided is inaccurate, associations could face liability if the loan goes into default due to inaccurate information. Additionally, the proposal also seeks public input on the use of community association transfer fees levied at the time of sale. CAI members will recall our successful fight to block another federal agency from banning most mortgages from communities with such fees. That proposal would have made up to 11 million homes unmarketable as approximately 49% of community associations charge a transfer fee. CAI addressed these and other issues in our 52-page comment letter to the government.

In early August, CAI commented on proposed regulations which would create Qualified Residential Mortgage (QRM) standards. While the QM regulations would establish ability-to-pay standards, the QRM proposal would establish regulations to govern the type of mortgages available to consumers. The draft QRM regulations include provisions which would require minimum 20% down payments and remove the ability of a borrower to finance closing costs and realtor fees. In fact, a study undertaken by mortgage lenders indicates that the QRM regulations as drafted would eliminate more than 70% of currently qualified buyers. CAI’s comments express concerns on a host of issues ranging from the impact of strict rules on an already depressed housing market to an unintentional growth in the role of the FHA for buyers who do not meet the new QRM standards.

The comment periods for these proposed regulations have now closed and the federal government will be reviewing comments and issuing a revised regulatory proposal on a date yet to be determined. In the meantime, you can follow CAI’s work and share your thoughts at We will continue to monitor and participate in shaping the development of the FHA’s condominium underwriting guidelines to ensure that the perspective of community associations is heard. If you have any questions about the QM or QRM regulations and how it could affect your community, e-mail with QRM/QM in the subject line.

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