If this is true then condo owners & buyers should be outraged - HUD and FHA new guidelines and the not so level playing field

Real Estate Agent with Keller Williams Realty - Lakeside Market Center

Last week I received an email from someone who wanted to know if there is a list of HUD approved condos that she could look over.  I directed her to HUDS site that is updated when condo sites are approved, searchable by state, city or zip code.

This morning I had some free time to read and decided to more thoroughly delve in to the FAQs that are posted by HUD regarding all the new guidelines that must be met in order for a buyer to purchase a condo with a FHA mortgage.

I have to tell you, while scrolling through one of the FAQs I was outraged to read the following (question #25 in the above linked FAQ):

A HUD owned REO does not need project approval.

How's this for a scenario?:   
2 condos are for sale in Mystic Village (made up name).  One of them
is owned by HUD, the other is owned by Mr. Jones.   

The HUD owned property can accept an offer by a FHA buyer and smoothly sail to closing. 

Mr. Jones cannot sell his condo to an FHA buyer unless his complex receives approval.

Excuse my language for a moment please...but how in the hell can this type of double standard be
allowed to happen???

Comments (43)

Shanna Hall
Real Estate Solutions - Kirkwood, MO
I love selling houses!!!St. Louis, MO 314-703-1311

Pretty scary isn't it?  amazing that our govenment has proven once again that "they" are above the rules applied to regular situations....

Feb 27, 2010 03:52 AM
Aaron Vaughn 830-358-0455
Conifer Builders LLC - Canyon Lake, TX

Do I really nee to explain?

HUD is a government-owned home. And the government is famous for making others live by its rules. Rule they ignore.

But you knew that! =)

Feb 27, 2010 04:03 AM
Dawn Maloney
RE/MAX Trinity Northeast Ohio Real Estate Specialist - Hudson, OH
330-990-4236 Hudson & Northeastern Ohio

Wow, I'm shaking my head - it just goes to show that we'd better check and ask questions in every situation. There is no status quo in our current market.

Feb 27, 2010 04:49 AM
Paul Hodge
Keller Williams Realty / Lake Norman-Cornelius - Huntersville, NC

Once you use the word government in any post, you know that the answer is simple.  The goverment usually gets in wrong in regards to anything associated with Real Estate.

Feb 27, 2010 04:51 AM
Michael J. O'Connor
Diamond Ridge Realty - Corona, CA
Eastvale - 951-847-4883

Ah, yes.  The government.  Gotta love the 'standards' that get designed into the system.  Yet another example of how things don't work. 

But at the same time we seem to need the government involved as their lack of oversight on the bankers helped us fall into this morass that we're in.  Yes, big double standard but I understand the point that Peter #5 makes that we need to keep the loans flowing.  It seems to me that they need to allow the financing on all units if they allow for one.  Maybe that will help the overall market.

Feb 27, 2010 05:10 AM
Wayne L. Brown
Franklin Advantage Inc. - Alpine, CA


The new Assistant HUD Secretary is now a member of AR.  Maybe you can look him up, and direct this question to him.

I'd be curious to see what he has to say.

Good post....very enlightening.

Feb 27, 2010 06:20 AM
Ron Parise
LocateHomes.com - Cape Coral, FL

I take the position with my clients that you cant buy a condo unless you have cash. Although there is a mortgage broker I know that says she can get it done with 30% down. There are a few exceptions; the certain few developments that are on the approved list and owner financed properties for example, Thanks for pointing out another exception. I wouldnt bet that the banks are willing to accept this exception however.

As to why the double standard makes sense..The government already owns the property...to guarantee a mortgage does not increase their risk exposure, like a new mortgage would.

Feb 27, 2010 06:55 AM
Rodney Mason
Guaranteed Rate NMLS# 2611 - Atlanta, GA
VP of Mtg Lending - AL, CA, FL, GA,NC, SC,TN,TX,VA

#5 has it right.  On a HUD REO, that property is costing HUD money every day it sits unsold to a new buyer.  With that being said, HUD is willing to allow a new buyer and take a risk on the stability of the condo project given that it already has exposure on that particular unit.  It is not willing to take on an additionalunit in the building where it is not currently on the hook for, thereby increasing its exposure in a particular community.  Fannie Mae has essentially the same guideline for its REO condos purchased with its exclusive HomePath program. 

While spot approvals have been eliminated, HUD replaced it with the Direct Endorsement Lender Review and Approval Process (DELRAP).  DELRAP is available to select lenders that HUD has deemed to have staff with knowledge and expertise to review and approve condominium projects and determine a project's approval.  Most existing condo projects will fall into this approval type. 

Lenders or HOA's may submit project directly to HUD under the HUD Review and Approval Process (HRAP).  Condos requiring HRAP include those <12 months old and those located in FL. 

In addition, the FHA concentration will be increased temporarily to 50%.  If you are working with an experienced lender with DELRAP authority, you should see very little disruption due to the new FHA condo changes.

Feb 27, 2010 06:56 AM
Lola Audu
Lola Audu~Audu Real Estate~Grand Rapids, MI Real Estate - Grand Rapids, MI
Audu Real Estate~Grand Rapids, MI ~Welcome Home!

Hi Kris, thanks for bringing this to our attention.  With so many units going into foreclosure in Michigan, I have also wondered how this might affect developments which were once approved but now have different owner occupied numbers due to the housing crisis.

Feb 27, 2010 07:07 AM
Jeff Dowler, CRS
eXp Realty of California, Inc. - Carlsbad, CA
The Southern California Relocation Dude

Kris - on top of all the other changes this one makes no sense. We shouldn't be surprsied - the governemtn seems bent on making things as difficult as they can, along with the banks, as opposed to doing more to help move invetnory adn help folks who really need it. It is very difficult here to find any condo complex that can go FHA, with lack of approvals, high HOA deliquenices, etc.


Feb 27, 2010 08:07 AM
Paul Francis
Francis Group Real Estate - Las Vegas, NV
Las Vegas Real Estate Agent - Summerlin Homes

As much as I would like to slam bureacracy, I have to agree with #5 and #31 on this one...

Feb 27, 2010 08:10 AM
Cynthia Larsen
Cotati, CA
Independent Broker In Sonoma County, CA

Yes it is true, but there is a bright side to this.  Almost all HUD homes qualify for some type of FHA financing, either 203(b) or 203(k).  The appraisal has already been done as well as the pest report and home inspection.  HUD will also pay the escrow fee if you use thier title company of choice.  If you have FHA approved buyers, do a property owner search, make a list of all HUD owned homes that haven't hit the market yet and send your buyers out to see if they would be interested in them.  Owner-occupant buyers have priority over investors, so there is a lot of opportunity to get your buyers into a condo that wouldn't normally qualify.  ALSO, HUD offers up to 5% of the offer price to the selling agent for their commission.  I know of only one drawback to bidding on a HUD home, there are no contingencies, so if you don't go through with the deal the buyer forfeits their deposit.  Double standard?? Sure, but use it to your advantage. 

Feb 27, 2010 08:17 AM
Ted Tyndall
Davidson Realty Inc. - Saint Augustine, FL
I will help You find the Home YOU want to Buy

Kris, thanks for the information. We have a lot of problems with approvals but had no knowledge of the HUD owned properties.

Feb 27, 2010 08:28 AM
Daniel J. Hansmeier
Rochester, MN

Different rules for different people is becoming standard practice in Govt. I'd believe anything. They are putting a whole new meaning to Lifes Not Fair. All we can do is the best we can.

Feb 27, 2010 08:30 AM
Carla Muss-Jacobs, RETIRED
RETIRED / State License is Inactive - Portland, OR

Why?  How come?  Seems to be explained in some of the comments.  But is STILL doesn't seem right.  Then again, I've changed my name to ALICE IN WONDERLAND because I'm totally AMAZED (not in a good way either) at what is going on.  Our LOCAL market didn't have the over-speculation of condos, and kept current with owner-occupied.  Since this isn't a vacation destination or second home mecca -- the Metro Portland condo market is being sucked dry when the FHA changed the rules of the game on Feb. 1, 2010.  People who didn't close by then, had to bail on their purchase.  Many first time buyers can ONLY afford condos, and the 3.5% down was extremely affordable. NOW . . . the geniuses running the program . . . broad brushed ALL FHA condo deals . . . when it DOES NOT APPLY to our market!!   Yes, having the HOA become 'registered' or approved, is all well and good.  But there are deals already DEAD in the water now.  THANKS once AGAIN Federal Government for the brainacs who put policy in place.  Your 'unintended consequences' are NOT helping.

Feb 27, 2010 11:54 AM
Kris Wales
Keller Williams Realty - Lakeside Market Center - Macomb, MI
Real Estate Blog & Homes for Sale search site, Macomb County MI

Shanna,  I've spent a bit more time reading the entire new guideline faq and still am befuddled about this, and the "why" of it.

Aaron,  Yes I knew that.  This whole past year has been reinforcing that in my head, and yet I was still outraged when I read that part.

Dawn,   You bet..and people think we don't earn our keep :-)

Paul,  I'm not naiive anymore..but I still think the word government should be about helping people, not hurting them. Shame on me for thinking that way.

Michael,   That is exactly my gripe - if it's allowed for one "type" of unit, then the whole complex should be deemed worthy.

Thor Funding,  Thank you, I will do just that!  I'll let everyone know if I receive a response.

Ron Parise, The government already owns the property...to guarantee a mortgage does not increase their risk exposure, like a new mortgage would.  As I've read through the comments what you say does make sense, but in my head (and heart) it doesn't make it right.  It will hurt other owners in the complex.

Rodney,   Thank you for your explanation.  I do appreciate the time you took to educate me about this process, in ways that HUDs website and FAQ couldn't.  (Far too lengthy and technical and difficult to nagivate through)  One part though stands out:  DELRAP is available to select lenders that HUD has deemed to have staff with knowledge and expertise to review and approve condominium projects and determine a project's approval.  Most existing condo projects will fall into this approval type.

When reading what HUD is looking for and the requirements to determine FHA insurance eligibility it appears to me that many projects in my Metro Detroit area will not meet the guidelines.  "Most" won't apply here.   Time will tell though.

Lola,  I think we both have a good idea as to how the foreclosure units will affect HUDs new guidelines..and it won't be pretty.

Feb 27, 2010 10:07 PM
Kris Wales
Keller Williams Realty - Lakeside Market Center - Macomb, MI
Real Estate Blog & Homes for Sale search site, Macomb County MI

Erica,   I keep telling myself that when we get out of "this mess" our industry is going to be better and stronger and more respected.  That's what keeps me going.. Thanks Erica.

Jeff,   I'm concerned about the same thing.  It was already more difficult for buyers to obtain FHA financing for condos within the last year, now I'm even more skeptical.  We'll all just have to muddle through this the best we can and hope that we see something positive coming out of these new guidelines.

Paul,   I understood their explanations and appreciated the time they took to share them.  Thanks for your comment Paul.

Cynthia,   I do understand that nearly all HUD owned homes will qualify for some time of FHA financing.  I've had many buyer clients purchase HUD homes and know they can be a wonderful home purchase for them.  My gripe is with non-HUD owned condos and the monkey wrench that is seemingly being tossed in to the equation by the new HUD / FHA condo purchase guidelines. 

Ted,  You're welcome, and thank you for taking the time to read and comment.  It's good to see you.

Daniel,  "Life's not fair".  Is that an understatement or what?  :-)  Thanks Daniel.

Carla aka Alice in Wonderland,   (Love it!)  Ouch, your market has really been hit hard by the guidelines for condo purchases.   I thought about other markets when I read this, those like yours where condo purchases are most often the only purchases that are affordable for first time home buyers.  I can't even begin to imagine the frustration and hurt that buyers felt when that Feb. 1st deadline came around and they hadn't closed on their purchases.  I'm so sorry for all of you.

Feb 27, 2010 10:17 PM
Not a real person
San Diego, CA

What's the surprise? Isn't the government always biased in favor of the government? LOL

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Mar 05, 2010 09:49 PM
"The Lovely Wife" (Broker Bryantnulls Wife) The One And Only TLW.
President-Tutas Towne Realty, Inc. - Kissimmee, FL

Good Lord Kris...

That really sucks. Surprising? Not really. It's getting harder and harder to be surprised by this nonsense :)

On a LOL note, I was going to flag you for "Excellent Post" but, it looks like someone already did :)


Mar 13, 2010 09:39 PM
Steve and Jan Bachman
RE/MAX Gateway, Reston, Herndon, Ashburn, Sterling, Fairfax - Herndon, VA
Realtors - Northern Virginia

You betcha...seen this inequity here as well and with no more spot approvals...condo sellers could be the next big wave of non stop bleeding

May 10, 2010 08:35 AM