Critical FHA Condo Approval Requirements to Sunset 8/31/14
Unless FHA releases a new Mortgagee Letter in the next few days, the temporary guidelines for condominium approvals created in Mortgagee Letter 12-18 will expire on August 31, 2014.
The highlights of the 12-page document include:
- Clarification of Under Construction,
- Approval Guidance for New Conversions,
- Requirements for Non-Residential/Commercial Space,
- Insurance requirements for Crime Policies,
- Modification of criteria for delinquency rate of unit owners,
- Updated Pre-Sale Requirements for new construction,
- Updated Owner-Occupancy Requirements for new construction,
- Investor ownership, and
- Modification of the Project Certification form (Appendix A)
For ordinary, existing condominium projects, the most important of these are the sections regarding investor ownership and unit owner delinquency rate.
Investor ownership. The temporary guidance allowed one entity to own up to 50% of the units in a condominium. Previously, one entity could not own more than 10% of the units. It also allowed for unoccupied and unsold units to not be considered as investor-owned units.
These changes made obtaining an FHA approval easier for new construction and conversions where the developer still owned a large percentage of units.
Unit Owner Delinquency Rate is now based on the 60-days instead of the 30-days. Initially, FHA had said no more than 15% of the unit owners could be 30 days or more delinquent with exceptions. This was changed to no more than 15% could be 60 days or more delinquent with no exceptions.
Many associations with whom we have worked were able to get approved solely based on this change.
HUD is expected to extend the effective date of this Mortgagee Letter. When I attended the HUD Roundtable session in Washington DC in March, HUD gave no indication that it had any intention of allowing this temporary guidance to come to an end.
...But talk about waiting to the last minute!
(c) Can Stock Photo / EyeMark
The Condominium Project Approval Team at ReadySetLoan is dedicated to helping condominium projects across the nation to obtain their approvals with FHA and the VA or become recertified with FHA. We have assisted nearly 200 condominiums and we can help your association.
ReadySetLoan is an active member of the Connecticut and New England chapters of the Community Associations Institute (CAI) and is a frequent contributor to Common Interest Magazine as an expert in FHA/VA condominium project approvals.
Please contact us with any questions regarding FHA or VA condominium project approvals. You can email me at askeric@readysetloan.com or call me at 404-433-4565. I will be happy to answer any of your questions.
FHA/VA Condo Approval Specialist
404-433-4565 Cell Phone
860-644-3772 Fax Phone
Check out our article in Common Interest magazine on page 19!
Eric, last minute is the way of that world. I would not be surprised if they let it expire and then revive it.
Eric like Kathleen said "last minute is the way of the world", and with HUD if seems like the opporate on the same principle as my youngest son, why do something until you absolutely, positively have too :)
Yet, in many communities, things will go on as usual.
I read those condo letters. They can be very revealing.
Kathleen - I have no reason to suspect that they won't extend the effective date. They are currently working on a comprehensive Handbook that will encompass everything to do with FHA and it sounded like they were going to leave these items alone.
Hi George - My younger guy is the same way. He had to read a book over the summer and write up a report on it; it was due today. He read the entire book Saturday to yesterday and completed the report at 2pm yesterday! Ugh.
Hi Lenn - that is good that you read those Letters. Most agents do not.
Eric
Thanks for the update. And Yes, HUD or most Government entities wait until the last minute, or let things expire, only to revise or extend at a later time.
Go figure.
Well Eric. They should because that's where pending litigation is disclosed.
Well, I'm a last-minute person too, but I prefer that the government be more proactive in some of these issues.
I think the unit owner delinquency rate is not a bad change. Condos become non-warrantable when there are too many owners in the complex behind on HOA or mortgage payments.
Hi Wayne - as mentioned in a comment above, HUD is working on a comprehensive handbook. I am curious to know if this is the reason behind the delay.
Hi Lenn - then I guess I am not following which letters you are talking about.
Hi Margaret - I also have a tendency to do things last-minute
Kevin - that is why I would expect the owner-delinquency rate to remain. Incidentally, Fannie Mae says 15% can be 30 days delinquent with exceptions but absolutely no more than 15% 60 days late.
Eric
Thanks for sharing the FHA condo approval requirements that are sunseting on August 31, 2004.
Good luck and success.
Lou Ludwig
We are seeing fewer and fewer condominium getting FHA approval in So. NH. It is making it difficult for buyers to purchase a condominium if they are getting FHA financing... and more difficult for owners to find a buyer who is going to get a conventional loan.
The delinquency rate can be a huge issue. It's good to know HUD will approve their own plan.
Eric, some of the things, looks like, are going to be better for borrowers - some relaxation in FHA guidelines.
FHA is very important to Crofton area home sales, so hopefully we experience any hiccups in this. In a previous similar situation, I did use the potential problem w/ FHA approval as motivation to accpet an contract offer before the existing legislation expired, so agents might turn this lemon into lemonade if the opportunity presents itself.
Eric, some of the things, looks like, are going to be better for borrowers - some relaxation in FHA guidelines. obat pembesar penis
Maybe relaxing some of the guidelines would boost using the program here. It's not very common in swfl.
Good morning Eric. Well deserved feature. I'm not sure we should be surprised that decisions like this come down to the last minute or at all. It makes good sense for this to be extended.
Thank you for reading Lou
Hi Joan, we have to continue to spread that message. We have been fairly successful here in CT in gathering and sharing market data. Numbers don't lie
Hi Pamela - we should see something in a few days
Hi Praful - hopefully this trend continues
That was a very proactive move Margaret to avoid a bad situation
Stepa - let's hope this continues
HI Laura - I like the photo as well
Chris - do you have a lot of non-resort (condotel) communities in Bonita? I lived in Naples and there were a ton that were condotels.
Thank you Joe. I have no reason to think that they won't be extended as HUD gave no indication that they wouldn't be.
Hi Eric. Waiting to the last minute is so typical.
Good Morning Eric: Your contribution in keeping us informed and in your pursuit to get more condos approved is invaluable. Keep it up buddy. Let us reach the 400K mark.
By the way, what is going to happen if they let it expire for a long time. What would be the repercussions?
I just wish HUD would bring back the spot approval. When you look at helping the housing market and specific buyers in specific areas, that's the way you do it. But way too "common sense," I suppose.
Hi Conrad - at the risk of sounding like an FHA "brown noser", I know that they are working diligently on several items at the same time, including a comprehensive guide that encompassess everything FHA.
Hi Maria - if it expires, those items mentioned in the article will go away which will greatly impact certain types of projects, making it more difficult to get them approved.
Hi Rob - I wouldn't expect spot approvals any time soon. An argument against spot approvals is if certain condominiums get a "pass" why not just throw out all of the regulations?
Your point is well taken--waiting till the last possible minute to extend is insane given how much of the real estate market could be impacted in many areas.
Typical government m.o. They'll likely extend in late September, and then make the extension retro-active to Aug 31.
Hi Nina and Claude - FHA did extend the expiration of the ML12-18. I received an email at 5:21AM on 8/30 providing notification of this. I'm going to write about it now.