Today, I want to tell a little story. About 4 years ago now, when your author was just a wee babe, clutching her (liberal arts) diploma and beaming at cameras while flashes popped. All the parents around her patted each other on backs and complimented each other on "raising such fine kids" while inwardly wiping their brows in relief that their kids had a.) graduated college and b.) did not get pregnant, c.) were (mostly) still alive and relatively healthy (senior week was a real test of endurance, I have to be honest) and d.) had not developed a massive drug problem.
A few months later, a newbie in her job at a new consulting agency, overwhelmed by all the responsibility and awed by all of the newness (new city! new job! new friends! new travel schedule! new york!), the nation's economy started to turn sour. I still remember the day that Lehman Bros went under. I was working in New York at the time, on one of my first projects ever. The news came from across the aisle-- from a cube mate. Having walked passed the giant, glass behemoth on the way to work, it had been hard to ignore the masses of people, the police trying to control the crowd and the general hullabaloo. But it was New York, so you kept your head down, didn't ask questions and shuffled to work. A few hours later, we found out that Lehman was over. Calls began to come in and out from friends and colleagues from Lehman, offering condolences, contacts and comfort.
Since then, the public has learned a lot more about what had triggered the worst economic downturn since the depression, and probably the most impactful thing of my generation's lives. As a generation, we've seen the biggest swing probably in history, from the dot com boom to the recession of 2008. But the root of it has come from highly complex terminology and calculations-- incorrect valuations, sub-prime lending, the growth of a housing bubble and an inaccurate calculation of systemic risk. Many regulations have been passed in order to make the future of the U.S. economy more stable, however, they have mostly happened under the radar for most. I was slightly more affected simply because I work in Financial Services and work with some of the new compliance regulations on a regular basis whether reactionary or proactively through things like LEIs. But I had never had too much exposure to the housing side of the equation. Until now.
The Federal Housing Association reacted to the downturn by analyzing some of the things that contributed to the housing bubble burst. People defaulting on mortgages and banks over-promising people when giving out loans-- inflating the market with underqualified folks who were knowingly getting in over their head basically. To counteract this they put in a few rules-- for me, the ones affecting condo purchasing hurt the most. You can apply for an exemption, but basically no housing association with over 20% in commercial space or higher than 15% of delinquency (people not paying their HOA dues) should be eligible for loan. Meaning, if you want to buy a condo that does not fit these requirements, lenders will not give you a loan without an exemption, which comes directly from Fannie Mae/Freddie Mac.
So for someone like me, my condo is a short sale and is a great investment property because of that very reason. However, it also has what they call "layered risk" because it has ~23% commercial space and a higher than 15% delinquency. Normally, these requirements from the FHA are put in to protect the consumer. If the HOA defaults (due to high delinquency), the consumer or homeowner is often left holding the bill for any major association-related projects (roofing, painting, patching, etc.). As a consumer, I'm willing to accept this risk. Here's the rub. Because of the layered risk, the property itself--the entire association and all the units included therein-- may not be eligible for loan. Without a loan, homebuyers like me are very unlikely to be able to purchase these properties (unless you happen to be a Colombian drug lord on the side or happen to have a couple hundred thousands stashed in a DVD case somewhere). Without new people purchasing properties and beginning to pay rent, delinquency remains the same. Catch 22.
So here I am, 2 days before I was supposed to close, when I find out about this stipulation that the broker had overlooked until now. Applying for an exemption requires paying a $200 fee and takes a 48 hour processing time. I'd be lying if I said it wasn't ridiculously frustrating, when something that is supposed to protect me and improve the economy is actually doing the opposite. The U.S. is certainly (hopefully) on the road to recovery, but it seems to me we have a lot more work to do before we define sustainable requirements and restrictions to maintain our future economic stability or *gasp* even plan for growth.
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