June 2013

Financial Updates and Opportunities for Community Associations
(Green can be Golden)
Wholesale Internet is Now Here   


Although many condo associations allow for AT&T, Comcast and RCN to enter their buildings and sell Internet connections for nearly $50 per month, Cagan has been saving some of its associations a considerable amount of money by transitioning to wholesale Internet.  As an example, last year a company called Everywhere Wireless installed wholesale Internet at Carmen Marine Cooperative, a 300-unit association located in the Uptown neighborhood.  At the time, the building only had access to AT&T; collectively, the homeowners were paying nearly $10,000 per month for only 200 units to have access to Internet.  After engaging Everywhere Wireless, the cooperative spends $3,750 per month for all 300 units to have access to high-speed Internet.  Now, Everywhere Wireless is able to offer this same service to smaller associations through community-wide Wi-Fi delivered for $12 per unit per month - with no upfront capital expenditure.  Although EW's program is being offered on a Wi-Fi only basis, they can also deliver over a wired infrastructure, such as fiber-optic, Ethernet or existing phone lines.  Please contact your property manager today to discuss more about this program, which ends on August 31, 2013.  Or, feel free to contact Everywhere Wireless directly at (866) 923-0982. 

Financial Protection for Community Associations May Come with a Price

The new Federal Qualified Mortgage (QM) and Qualified Residential Mortgage (QRM) rules will help confirm borrowers are qualified to maintain their financial commitments when buying property in community Associations. Basel III (or the Third Basel Accord) is a global, voluntary regulatory standard on bank capital adequacy, stress testing and market liquidity risk. These three agencies have tightened standards for residential purchases both for consumers and investors.

Lenders must now provide proof that borrowers are able to pay their monthly assessments. Borrowers are not allowed to spend more than 43% of their income on mortgage related expenses and this includes Community Association assessments. Lenders have until January of 2014 to comply with these new lending standards.

These new regulations may protect Community Associations but also have a profound effect on the economy overall and there are mixed reactions as to whether it will hurt or help. Some financial analysts believe that if implemented in their current form, the new regulations will effectively lock in the extremely tight credit standards lenders have put in place since the mortgage crisis. Based on the new regulatory standards imposed by QM, QRM, and Basel III, there may be up to 20 percent fewer loans issued. This could result in 600,000 fewer home sales. The resulting tightened lending and reduced sales are estimated to cost up to 1,010,000 housing starts, 3.9 million fewer jobs, and a loss of 1.1 percentage points from GDP growth over the next three years.

Here are six key features of the new regulations:
  • QM - 43% borrower debt to income ration (includes house debt, car loans and student loans).
  • QM - Rebuttable Presumption.
  • QM and QRM -- Full documentation and limited loan features such as negative amortization, adjustable rate mortgages (ARM) and rate resets.
  • QRM - Higher down payment requirements of 20%.
  • QRM - High credit standards that would be similar to a 690 FICO score.

Banks may become cautious in terms of how they originate loans to sell to the GSEs and FHA. If they write loans that are not accepted, the banks will be forced to keep them in their portfolios. The other side of the coin is that this may cause Community Associations to focus on qualifying for FHA certification. Since banks are more likely to issue mortgage loans for property in FHA certified communities, FHA certification may actually have an effect on property values.    

FHA Approval for Community Associations  


The Community Association Institute (CAI) has said that FHA continues to make progress in drafting federal regulations to support a condominium approval process. CAI anticipates that upon completion, it will be available for advance review and public comment. This may cause many condominium associations to update CC&Rs to ensure compliance with new FHA guidelines. Here are some of the reasons why:

If an FHA loan is not being used to purchase a unit in a Community Association, there is a good chance the buyer is an investor. Over 80% of buyers are now using FHA loans. The remaining buyers are usually investors who are not able to use an FHA loan to purchase a unit. Most investors want to rent out their units.

FHA loans used to be for low income buyers. Now the majority of home buyers use FHA for loans and refinance:
  • FHA loans can be used for loans up to $400,000.00 for condominium purchases.
  • The median credit score for an FHA loan used to be around 400. Now, it is approaching 700.
  • FHA buyers are fully documented buyers.  There are no stated income programs or lite-doc programs. This means that the buyers have proven to have both income and assets to qualify for their purchase.

In order for a buyer to use an FHA loan, the community association must be FHA approved. In the past, few condo associations became FHA approved. This was due in part to individual unit owners having the ability to apply for a "spot" approval which could be done at the time of purchase or refi. The approval was only good for the one unit. However, this process has since been outlawed.

The cost of FHA approval for a Community Association ranges from $1000.00 - $1500.00. Two primary qualifications include 51% owner occupancy and 10% of the community's annual income must be deposited in a reserve account. As time goes on, FHA approval will affect property values. Explore the possibility with your Cagan Property Manager. They can also provide resources for getting it done.   

Money is Green so the Roof Should be Too

The traditional Chicago style building that exists in so many of our neighborhoods has a flat roof. You may want to make it green. If your community is facing a roof tear off, you may want to do some research into the possibility of a green roof. Chicago is a mainstay for this technology. All you have to do is look at City Hall, Millennium Park and 340 on the Park (Randolph Street - Silver rated residential community by LEED - Leadership in Energy and Environmental Design). An engineering consultant can determine what is possible for your roof.

Different green roof systems range in terms of added weight. Pre-planted trays with a growing medium sit on the roof and create the green roof. The plants generally do not have to be trimmed because the thin layer of soil encourages plants to spread out rather than grow tall. A green roof inspector should regularly inspect the roof so its development can be properly controlled. The benefits improve the living environment of the community as well as save money:
  • Green roofs save energy costs.  Typically, a well designed system can save 25%
  • Green roofs can actually extend the life of the roof by protecting the roof membrane. Life expectancy may be extended by as much as 20 years.
  • Green roofs can function as a sound barrier and make the community as much as 50 decibels quieter.
  • Green roofs retain storm water which reduces runoff into storm water systems and reduces potential basement flooding. The water that does run off the roof is cleaner because the roof has filtered it.
  • Green roofs can become a social center when combined with a roof top deck and a natural and entertaining wildlife habitat for butterflies, birds and for people to watch.

If you think your building may be a good candidate to explore this state-of-the-art roofing technology, your Cagan Property Manager can assist you. It may cost more upfront but save money in the long run. There is no reason the principles of adaptive reuse or adaptive redesign can't be applied to the roof and improve both the living conditions and finances of building communities.  

Green Laundry is Good
(Environmentally and Financially Green)

According to a study done by the Multi-housing Laundry Association, central laundry rooms are gaining popularity among community associations. They offer both environmental and financial advantages to unit owners. Here are some of the reasons why:
  • It is expensive for individual unit owners to invest in washers and dryers.
  • Washers and dryers take up valuable space that can be used as additional living or closet space.
  • Washers and dryers add to the energy bills of individual owners.
  • Individuals tend to do more small loads while those using laundry rooms tend to do less but larger loads which tend to use fewer resources and be more efficient. Central laundry facilities actually conserve water.
  • Electric dryers are far more expensive to run than gas dryers. 96% of in unit dryers are electric while 36% of dryers in central laundry rooms are gas.
  • Central laundry rooms also make it possible to do several loads at one time saving time. 

There are many service companies that can help you plan and install a central laundry facility. They look at the number of units and the population density of your community association. You can also survey your community to find out what features you would prefer on washers and dryers. The machines can be purchased or rented with a maintenance contract depending on what is most economical. Some laundry rooms actually produce a profit for the community. If you don't like dealing with coins or tokens, many modern machines can be operated using a credit card. Your community may be able to help the environment and save money at the same time. 

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