By Natalie Stewart, FHA Review, President, CAI-CLAC PR & Fundraising Chair
I’ll get right to the point. If Assembly Bill 3182 (Ting) becomes law, it will have immediate negative consequences to the following groups of people: first time homebuyers, veterans, seniors and small business owners that provide essential services to HOA communities. All homeowners in California’s more than 55,000 Common Interest Developments (CIDs) will be affected. ALL OF THEM. Condominium associations will be hit the hardest, because lending requirements are the strictest. But this will trickle down to affect all CIDs.
How you ask? The intent is to remove a CIDs right to adopt reasonable rental restrictions in their own community by imposing a law with a one-size-fits-all set of regulations, which historically does doesn’t work in California. Why? Because not all communities are alike. Currently, rental restrictions are tailored to meet that community’s specific needs, which vary depending on a community’s location, the price of its units, the age of its residents and the demand for rentals in the local market.
Why will AB 3182 have such a negative impact? The bill will force communities to amend documents and completely remove whatever reasonable restrictions are currently in place. Doing so will severely impact VA loans and opportunities for first time homebuyers by opening the door to investment buyers to procure multiple units. These actions will increase costs to homeowners and add to California’s housing affordability crisis.
Are rental restrictions really that important? Yes. Absolutely. Fannie Mae (FNMA), Freddie Mac (FMAC) and the Federal Housing Administration (FHA), which collectively purchase most of the residential mortgages financial institutions originate, all impose some restrictions on rentals in condominium communities, and they will not finance loans in communities that do not comply with their guidelines. In addition, FNMA, FNMAC, and FHA consistently change their requirements based on market conditions. FHA has a built-in mechanism to allow for these changes, which is even further proof that a one-size fits all approach is a terrible idea.
Wait, what about the VA? Guess what. The VA has a different approach than FNMA, FMAC, and the FHA. The VA doesn’t allow rental caps at all. The good news is that this can be circumvented by recording an exception for units encumbered with VA financing. The bad news is no one knows about it. Clearly the State Legislature doesn’t because they are literally enacting a law that will harm Veterans, at the benefit of Investment buyers.
That’s great! We can amend the documents and save VA loans? Yes, but that’s not really going to happen. AB 3182 has a requirement that all CID’s shall amend their governing documents to conform to the new requirements no later than December 31, 2021. It is very likely most condominium associations will not incorporate the VA language because they don’t even know it exists. I’m not exaggerating. This is what I do, and I find professionals in the industry every day unaware of the nuances in VA lending requirements. Additionally, even if a community is aware of the VA exception, amending documents frequently requires approval of 50% or more of the owners, making it a costly, time consuming and difficult process. Even worse, if a CID fails to overcome these significant challenges and amend its documents by December 31, 2021, AB 3182 exposes the CID to a monetary penalty.
The good news is the Governor can stop the damage by vetoing AB 3182. The answer to the State’s housing crisis is building more units NOT making it more difficult for individuals to achieve the California dream of owning a house.
FHA Review is a 3rd party submission service that specializes in the 2020 VA and FHA Condo Approval Process. It works directly with the Federal Housing Administration (FHA) and the Department of Veteran Affairs (VA) to get condominium owners all over the United States VA and FHA approved loans.