Condominium buyers have to abide by fresh lending rules. This has compelled many developers to scrap new projects. They fear many buyers will not be able to buy condominiums.

The Federal Housing Administration has put a limit on the number of buyers who can avail of loans. There are also restrictions on apartments where there are many delinquent owners and tenants too.

The strict lending norms have been designed to safeguard FHAs financial health. It may be noted that around 18 per cent of loans are in foreclosure or delinquent. FHAs cushion reserve has dipped below the minimum level required by FHA. This move has come as a blow to condominium buyers as FHA is the main source of financing.

Rene Oehlerking, marketing director of Garbett Homes, says that the development has had serious implications for the company. Already the company has scrapped a 300-unit condominium project. The complex will be redesigned as standalone homes. Many of the builders homes went to people who had FHA loans.
The condominium project of Garbett had to be cancelled because of FHA regulation that at least 50 per cent of condominium buyers must have FHA loans. In 2011, the number comes down to 30 per cent. There is also another rule that requires 30 per cent of homes in buildings be sold before the agency insures loans. In 2011, the number will rise to 50 per cent. In Florida, where the real estate sector has been ravaged by the effects of the downturn, there has to be a special approval before the loans are made.

David Ledford, senior vice president of National Association of Home Builders observes that the developers are just not interested in the condominium projects. The risk is too much. They fear that they will not be able to sell them to buyers. Government officials are of the opinion that such rules are necessary to protect consumers from being duped. There must be a flexible yet balanced policy that will help to minimize risks to consumers.

Richard Vetstein says that the tough rules would ensure that consumers be protected. Now lenders would be more careful about projects they handle. This will definitely have a good effect as condominiums would then make for better investments. It may be noted that during the boom phase, the FHA was never a big source of condominium loans. The rules governing the condominiums were not even revised after the 90s.