Feds Propose New Lending Standards for Condo Developments

Angie Schmitt reports on new lending standards for mixed-use condominium development proposed by the Federal Housing Administration.

Under current rules, FHA loans are available for mixed-use condo projects where the commercial component is 50 percent or less of the floor space. The agency may now lower that ratio to 20 percent or raise it to 60 percent, depending on what it thinks the market will support. FHA notes in its press release, however, that 'in the near term' it probably won’t allow a ratio higher than 50 percent, in order to protect the 'residential character' of condo projects.

Schmitt notes that experts, namely John Norquist, former president of the Congress for New Urbanism, have questioned the ability of the proposed rule change to really influence the development market to allow for mixed-use projects. According to Schmitt, Norquist "said 60 percent would be an improvement, but he thinks the feds should stop playing guessing games about what mix of commercial and residential will make projects viable." Norquist would prefer underwriting standards that focus on creditworthiness.

The proposed rule change would be one step toward "legalizing Main Street," as described in a recent op-ed by Jonathan Coppange.