CONDO ALERT -  Yes, condos have looked attractive to many borrowers of lately because they are dropping in price in several areas by more than a few dollars. But so many people are asking why Condos are more difficult to purchase now than ever before. And so many are complaining that lenders are being more difficult when purchasing condos. The main reason?  Many condo associations are under water when it comes to the monthly dues that they collect. They are in the red... I know of one association that is over $50,000 in the red. By normal standards, the association is suppose to have 2 months or more in reserves per unit. Hence why it's been harder to get buyers a mortgage when there are no funds in the reserve account.

In any case, HUD just added a new mortgagee letter on June 12th, 2009... ML 2009-19. Condominium Approval Process

So, what does this all mean?  The mortgagee letter, ML 2009-19, goes into effect on FHA loans with any FHA case number assigned on or after October 1, 2009.  What is the biggest issue with this new mortgagee letter? The Spot Approval process as defined in Mortgage Letter 1996-41 is eliminated with issuance of this guidance. The DELRAP and HRAP processes have been streamlined to allow for uncomplicated condominium project approvals eliminating the need to approve units on a “spot loan” basis.

Overall, in laymens terms?  Lenders won't be able to do 'spot approvals' of a condo unit. What they will still be able to do though is to approve a whole condo project. The mortgagee letter goes into more detail stating that only those lenders that have experience in condo project approvals should do this. In regards to Infinity Home Mortgage Company, we have a few underwriters with 15 + years of doing condo project approvals. And we will take this challenge and still approve condo projects. But HUD says that it can only be done 2 ways. Per the mortgagee letter, this is stated :

The Lender will have 2 options:

1. HUD Review and Approval Process (HRAP).
2. Direct Endorsement Lender Review and Approval Process (DELRAP), outlined in this Mortgagee Letter. This option is only available to lenders who have unconditional Direct Endorsement authority and staff with knowledge and expertise in reviewing and approving condominium projects.

What type of projects are allowed under this new process?

1. Proposed/Under Construction;
2. Existing Construction; or
3. Conversions.

Conclusion :  As mentioned, HUD states that only those lenders that have experience in the past should be doing these condo project approvals.  Yes, they have streamlined the process to make it simpler. But taking away the spot approvals will add more time onto these approvals. I didn't want to bore anyone with the details of what is allowed, what is not allowed, and what the process is for these approvals.  But it can be read in this mortgagee letter, ML 2009-19.  Overall, FHA loans are very affordable and this news about spot approvals should not discourage any borrower.... but...  be very careful about the association dues, because I have seen many more in recent months become more expensive, just because the lack of funds in the reserve accounts, which is needed for approval. And HUD will always be updated the Condo approval list. You can find out if your condo association is approved by clicking on this link. HUD condo approved list

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For more information on FHA loans, please go to this link. The FHA Expert

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For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags !!!!

Copyright © 2009 by Jeff Belonger of Infinity Home Mortgage Company, Inc