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Crippling regulatory uncertainty

Posted by Richard on May 29, 2012

A friend who owns a condo showed me the latest condo community association newsletter the other day. An article in it illustrates in a small way why the economy in general and the housing market in particular aren’t going to get healthy as long as the Obama administration is in office.

Because they often attract first-time buyers with limited funds for down payments, condos are frequently financed with FHA loans. Let’s set aside for the moment the issue of whether the FHA program should exist — or needs to. It’s been in place for many years, guaranteeing loans with low down payments. To offset the increased risk, the government requires buyers to carry mortgage insurance until their equity in the property reaches 20%, and there are stricter rules on what properties qualify for an FHA loan.

Apparently for condos, HUD requires the condominium association to apply for FHA certification of its properties. And the process has become much more onerous under the Obama administration. For one thing, in this area as in so many others, the Obama administration has made regulatory uncertainty a way of life, as the newsletter explains (emphasis in original):

In November 2009, the federal government decided to change EVERYTHING with respect to the process and approval requirements for condominium associations only. Then they changed again in February 2011. And again in June 2011. …

Through June 2011, Westwind Management (our management company) was successful in recertifying all of its qualified condominium clients within HUD standards. Now, condominium associations are required to be recertified every two years. This is a time consuming and costly burden that was not necessary before 2009.

But it’s not just constantly changing regulations and burdensome paperwork. The managing agent has to keep HUD informed continuously of any information changes, possible defects, disputes among owners, etc. There are no doubt scores, and perhaps hundreds, of pages of hard-to-understand regulations detailing what the management agent is obligated to provide. And he or she is personally responsible for failure to comply:

The language is vague and the penalties are untenable. The penalty for a fraudulent package or not reporting changes is up to $1,000,000 in fines and/or a maximum of 30 years in prison.

Would you want that job? Or invest in a condo management company in this regulatory climate?

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