Less than a year after temporarily easing requirements on condominiums, the Federal Housing Administration is proposing to relax the approval process for condominium developments.
In November 2015, the Department of Housing and Urban Development issued Mortgagee Letter 2015-27 temporarily changing the requirements for condominium lending.
Among the changes were a streamlined condominium recertification process,
expanded eligibility of acceptable owner-occupied units and expanded eligible project insurance coverages.
Those changes expire in November 2016.
On Tuesday, HUD
submitted a proposed rule on condominium project approvals. The rule is in response to changing conditions in the condominium market.
FHA is proposing that spot approvals be reinstated on
unapproved condominium developments.
Recertifications of approvals, which are currently required every two years, will be extended to three years.
Public comment is sought on
minimum owner occupancy for condominium developments. FHA proposes to change the requirement from 50 percent to a range of between 25 percent and 75 percent.
The proposal expands the limit on commercial/non-residential space from a maximum of 50 percent of the projects total floor area to a range of between 25 percent and 60 percent.
FHA is proposing to insure individual units in developments that aren’t currently approved. Among several requirements for this is that the project is not
subject to adverse determination for significant issues that affect its viability, the project is completed, and the unit is in a project where single-unit approvals are limited to a maximum of 20 percent.
Direct endorsement lenders that become approved for the
Direct Endorsement Lender Review and Approval Process will need to meet minimum requirements that ensure they have experienced employees, have originated at least 10 condominium loans in HUD-approved projects and have an acceptable quality-control plan.
“FHA’s intent is to modify its condominium rules to ensure financial soundness and project viability, but in a manner that is more flexible where possible and responsive to the market,” HUD stated.
