At one time, Maui had about 40 condominium properties where home buyers could use mortgages backed by the federal government to buy a relatively affordable home. Due to the wild swings in the mortgage approval process following the Great Recession of 2008-09, that number is now down to about five qualified properties. The number is expected to continue to decrease without intervention.
That's bad news for advocates of affordable, working class housing on Maui. And it is particularly troubling for families hoping to buy their first home. With the recent upswing in home values, most first-time home buyers cannot begin to qualify for a single-family home. Their only shot at owning their own home is a condominium, and even then, most need the extra help that FHA (Federal Housing Administration), VA (Veterans) or Rural Housing (U.S. Department of Agriculture)-backed mortgages are meant to provide. But there are almost no qualifying Maui condo complexes where they can use these mortgage tools.
The good news is that the Realtors Association of Maui (RAM) has pulled together a team of affordable housing specialists, including the county Department of Housing and Human Concerns, local Maui lenders and Maui realtors, to get more condo properties qualified for these critical loans. The qualification process is called HUD Certification, so this committee is calling itself the HUD Team.
HUD stands for the Federal Department of Housing and Urban Development, the mammoth agency that oversees federal housing efforts and encompasses much more than Section 8 federal rental subsidies.
"It's critical that we get more condo properties qualified for FHA loans if Maui's working class families are going to have a fighting chance of owning their own homes," said RAM Affordable Housing Chair Victoria Cheromcka.
In areas like West Maui, there are no single-family homes available below $400,000. That's well above the affordable range for first-time home buyers. Their best possibility for owning is a condominium, but most working families cannot come up with the 20 percent down ($40,000 on a $200,000 unit) that regular conventional loans require. They need the 3.5 percent down ($7,000 on $200,000) that comes with a FHA loan, she said.
"If Maui is going to continue having any affordable housing, we have to make sure that these condominium properties remain available and affordable to local, working families," she said.
Their research led the HUD Team to the realization that getting condominium properties HUD-certified is no piece of cake. Before the housing meltdown of 2008, getting condos HUD-certified was a much easier process. The meltdown uncovered lots of fraud and other shenanigans in the housing lending market, and in reaction, HUD severely tightened its qualifying criteria for FHA loans. Individual units can no longer be "spot" approved. Now, whole projects have to be approved.
And the project must meet standards like having no lawsuits against it; enough homeowners living in their units; no units used for short-term rentals; only so many foreclosures; etc. The application for one West Maui property ran 280 pages.
And then the party applying for the certification has to be willing to sign a statement certifying that that pile of paper represents the truth, under pain of a potential federal fine of up to a million dollars and/or 30 years in jail.
"That's a lot tougher than the penalties most of the crooks on Wall Street faced, so naturally the volunteer boards that run condo properties are not about to sign such a statement," Cheromcka said.
The more the HUD Team dug, the worse the situation seemed, until they hit on the existence of specialized companies that will compile the needed documentation, sign the certification statement, and make the application to HUD in the name of a condo property for a fee, averaging around $1,000.
"We have focused on one of these agencies and are about to run a test to see how well this fee-for-certification process works," said Melissa Salvador of Aloha Mortgage Loans. "We are truly impressed with the agency's material on why it's important for condo projects to get HUD-certified and with their specialized focus on this pretty daunting task."
In the upcoming test, the HUD Team is preparing to use this agency to get a West Maui and South Maui condo certified. Once that is done and the test is a success, the HUD Team is going to approach other previously qualified properties to encourage them to get certified as well.
"If the upcoming test goes as planned, we will be reaching out to the boards of condos that had previously been certified by HUD. If you are a condo board member or a resident who is interested in getting your property HUD-certified, then we would like to hear from you," Salvador said.
"We need to get as many condos as possible certified if Maui's working families are going to continue to have affordable housing options."
Members of the HUD Team include Jo-Ann Ridao, Maui County director of Housing and Human Concerns; Buddy Almeida, county deputy housing administrator; Cheromcka of Island Sotheby's International Realty; Salvador of Aloha Mortgage Loans; Fran Peart-Mitsumura of First Hawaiian Mortgage; Lawrence Carnicelli of Prudential Maui REALTORS; Toni Johnson of Maui Showcase Properties; and Sandy Rice of Wells Fargo Home Mortgages.