FHA Says We Don't Want Your Condo's

Effective February 01, 2010 FHA will no longer offer spot approval on Condominiums.  All current condominium that are presently approved will not be approved effective February 01, 2010, except those approved after October 01, 2008.  Present condo's will need to be approved under the new options.  All condo projects will require a recertification every two years. There are two (2) approval options for Condo's: HUD Review and Approval Process (HRAP) Direct Endorsement Lender Review and Approval Process (DELRAP)

HUD has taken a lot of losses on large condominium projects and has been determined for a long time to get out of the approval process.

The latest guidelines are described in two separate HUD/FHA documents:  (i) Mortgagee Letter 2009-46B (the revised guidelines for FHA approval of residential condominium projects); and (ii) Mortgagee Letter 2009-46A (temporary guidance for condominium approvals).

In short, Mortgagee Letter 2009-46B replaces Letter 2009-19.  The temporary guidance (Letter 46B) acts as a buffer to ease transition from the old to the new regulations.

• Lenders
• Builders

Look for all Condo sells to be nearly impossible for the coming future.  HUD/FHA is not know for their speed, and Homeowner's Insurance are not know for their organization.  HUD will obviously be flooded with approval packages.  Getting a condo project back on the approved list (keep in mind the old ones will be removed from FHA Connection) will be a slow and painful process.  Until a condo appears on the list FHA financing is not an option.

The public can search for approved Condo projects from HUD.gov's website.

Eligibility Requirements for a FHA Condominium Project

• Projects must consist of two or more units
• No more than 25% of property's total floor area can be used for commercial purposes.  Commercial portion must be free of adverse conditions to occupants.
• One investor may own no more than 10% of units.  This applied to developers/builders that rent vacant and unsold units.  For two and three unit properties, not single entity may own more than one unit; all units and common areas must be 100% complete; and only one unit can be conveyed to non-owner occupants.
• Projects must be covered by hazard and liability insurance, and flood insurance if applicable.
• Right of first refusal is permitted unless it violates discriminatory conduct under the Fair Housing Act.
• No more than 15% of the total units can be more than 30 days delinquent on the condominium association fee payment.
• At least 50% of the total units must be sold prior to endorsement of any mortgage on a unit.  Valid pre-sales include an executed sales agreement and evidence lender is willing to make the loan.
• At least 50% of the units must be owner-occupied or sold to owners who intent to occupy the units.  For proposed, under construction or projects still in their initial marketing phase, FHA will allow a minimum owner occupancy amount equal to 50% of the number of pre-sold units (the minimum pre-sales requirement of 50% still applies).
• Legal Phasing is permitted for condominium processing.  It is recommended that developers submit all known phases for initial project approval.  For purposes of calculating the owner-occupancy percentage: (i) On multi-phased projects the owner-occupancy percentages is calculated on the first declared phase and cumulatively on subsequent phases if the ownership of the project remains the same; (ii) If multi-phasing includes separate ownership per phase, each phase is calculated individually; or (iii) Single-phase condominium project approval requests must meet the owner-occupancy percentage requirement.
• FHA Concentration: (i) Projects of three or less units will have no more than one FHA insured unit; (ii) Projects of four or more units will have no more than 30% of total units insured by FHA.
• A current reserve study must be performed to assure that adequate funds are available for the funding of capital expenditures and maintenance.  A current study must be no more than 12 months old, if recent events or market conditions have affected the finished condition of the property that information must be included.  When reviewing the study, consideration must be given to items that have been replaced after the time that the reserve study was completed.

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