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FHA Eases Condo Requirements

Mortgagee Letters 2009-46 A, 2009-46 B issued

Nov. 9, 2009

By MortgageDaily.com staff


Under a new process, mortgagees approved by the U.S. Department of Housing and Urban Development can approve condominium projects themselves. HUD has also implemented some temporary provisions as it moves to support the condominium market.

In Mortgagee Letter 2009-46 B issued Friday, HUD implemented a new approval process for condominium projects. The update was made as required by the Housing and Economic Recovery Act of 2008.

Changes to condominium approval requirements, which are effective for all case numbers assigned on or after Dec. 7, include allowing lenders to determine project eligibility, review project documentation and certify to compliance with Section 203(b) of the NHA and 24 CFR 203 of FHA's regulations.

Lenders will have the option of either using the HUD Review and Approval Process or utilizing a Direct Endorsement Lender Review and Approval Process. The latter requires the lender to provide the condominium approval or denial documents to FHA within five business days of its final disposition.

Condominium projects will be eligible for lender approval only if they are proposed or under construction, existing construction, or conversions.

But lenders in Florida won't have access to the Direct Endorsement Lender Review and Approval Process. Florida projects will need approval from the Atlanta Homeownership Center.

HUD noted that condominium hotels, timeshares and houseboat projects are ineligible for the lender approval program.

HUD also issued Mortgagee Letter 2009-46 A on Friday, which provides temporary guidelines for condominium project eligibility in an effort "to address current housing market conditions."

Mortgagee Letter 2009-46 A waives five provisions of 2009-46 B.

Among the waivers is a delay in the elimination of the "spot loan approval process." The elimination was slated to occur on Dec. 7 but was moved back to Feb. 1, 2010. HUD noted concerns about the volatile condominium market.

FHA concentration requirements are temporarily being increased to 50 percent and could be increased to 100 percent if the project has been completed for one year, every unit has been sold and no entity owns more than 10 percent of the units.

In addition, a project budget must provide for funding of replacement reserves for capital expenditures and deferred maintenance, homeowners must have control of the homeowners association and at least half the units must be owner-occupied. Real estate owned, or REOs, will not be factored into a complex's ratios.

On new construction, the pre-sale requirement defined in ML 2009-46 B will temporarily be reduced to 30 percent. Pre-sales must be documented with mortgagee loan approvals and proof of the sales.

read Mortgagee Letter 2009-46 A

read Mortgagee Letter 2009-46 B

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