Despite industry and congressional pressure, Housing Secretary Julian Castro is taking a cautious approach to relaxing Federal Housing Administration condominium rules.
Department of Housing and Urban Development staff are working on a revision to the agency's condo rule and "we anticipate a rulemaking process," the HUD secretary said Monday evening at a housing event co-sponsored by George Washington University and Realtor.com. "Hopefully that will make a positive contribution to homeownership."
When asked if HUD would issue a proposal regarding condos by yearend, Castro replied: "Our folks are working on it."
"We are focused during this term on addressing the issue of condos," Castro said. "I believe that is going to offer greater opportunities, especially for first-time homebuyers for whom a condo is a logical choice for a starter home."
HUD data shows that FHA condo loan endorsements dropped to 22,800 in fiscal year 2014 from 57,800 a year earlier.
The National Association of Realtors and other industry groups are supporting legislative efforts to pressure HUD to speed up its condo rulemaking process.
Rep. Blaine Luetkemeyer, R-Mo., held a hearing Oct. 20 on a bill that would make significant changes to FHA's condo rules and other HUD housing programs.
The "Housing Opportunity Through Modernization Act" would streamline FHA's certification requirements for condo projects, allow more commercial space in FHA-approved condo buildings and relax the owner-occupancy requirements.
The bill's supporters are urging House Financial Services Committee leaders to schedule a vote for the condo bill for next week.
HUD staff may be moving slowly in part to ongoing concerns about fraud and loan losses.
In September, the owner of a Florida mortgage company was sentenced to over 11 years in prison for mortgage fraud involving FHA-insured condo loans.
Hector Hernandez of Miami, the former owner of Great Country Mortgage Bankers, pleaded guilty to making loans to unqualified borrowers that purchased condo units during 2006-2008 that Hernandez owned. Many of the loans defaulted, resulting in a loss of at least $64 million, according to the U.S. Department of Justice.
In addition to the prison sentence, Hernandez was ordered to pay $64.4 million in restitution and to forfeit $8 million in illicit profits, according to a Justice Department press release.
"HUD views the Hernandez case as symptomatic of a bigger problem," said Brian Chappelle, a mortgage consultant and co-founder of Potomac Partners in Washington
"Since condominium claim rates have been much lower than claims for loans on single-family detached homes, I would say the Hernandez case was a terrible abuse of the program, but isolated," Chappelle said. "Because of that fear in Florida, they are keeping a tight lid on the condo program."