Miami Condos, new rules could keep out buyers and hurt builders

New lending rules for buyers of Miami condos are already pushing some developers to change or cancel plans for new projects fearing too many buyers will be shut out.

The Federal Housing Administration, on Monday, started limiting the number of buyers in condo buildings that can get loans insured by the agency. Restrictions were also put on buildings with poor finances, too many delinquent owners and high number of rentals.

These new rules are designed to protect the financial health of the FHA. Approximately 18% of loans insured by the FHA are either late or in foreclosure and the agency's financial level has dropped below the federal minimum.

But the move is a blow to buyers of Miami condos because the FHA has become a key source of mortgage financing. The agency insures roughly one in four new loans today because buyers need only have a 3.5% down payment for Miami real estate properties.

Rene Oehlerking, marketing director for Salt Lake City developer Garbett Homes says, "It is a huge debacle for us."

The company has canceled a 300-unit condo project, spending $300,000 to redesign it into freestanding homes. Most of the builders' Miami homes and Miami condos this year went to buyers with FHA loans.

Garbett's condo project didn't coincide with the new FHA rule that allows only half of a condo building's units to have FHA-backed loans, with some exceptions. That number will fall to 30% in 2011.

The rules also require at least 30% of units in new buildings be pre-sold before the agency insures any loans and this number will rise to 50% in 2011.

Miami real estate projects, where the condo market has been devastated, will require special approval before FHA-backed loans can be made.

David Ledford, senior vice president for housing finance and land development at the National Association of Home Builders says, "Many of our developers won't be able to pursue condominium projects because the risk is too great that they won't be able to sell the units.”

Government officials, however, say the rules are necessary to ensure consumers are purchasing units in viable buildings and to help ensure that defaults on Miami real estate projects don't rise too high.

Contributed by MLR Realty