FHA Condo Approval Process – MAJOR Guidline Changes
Jim Reppond on 06 27, 2009
There are major changes on the way for developers of condo projects and existing condo owners who want to get approved for FHA financing. These changes are set to take place October 1st, 2009. But the ramifications are going to start being felt right away. The details are outlined in the Mortgagee Letter 2009-19 that was issued on June 12th by HUD. In this latest Mortgagee Letter FHA is announcing dramatic changes to their Condo Approval Process and the ELIMINATION of the Spot Approval Process. While these changes reduce the documentation and requirements for Full Condo Approval, it will place a lot more work and responsibility on Lenders.
The Lender will have 2 options:
- HUD Review and Approval Process (HRAP).
- 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.
The processing options stated above will be applicable to condominium developments that are:
- Proposed/Under Construction;
- Existing Construction; or
- Conversions.
Certain types of projects will be ineligible. They are:
- Condominium Hotel or “Condotels”
- Timeshares or segmented ownership projects
- Houseboat projects
- Multi-dwelling unit condominiums [i.e. more than one dwelling per condominium unit]
- All projects not deemed to be used primarily as residential
One very negative aspect of these new guidelines is the elimination of the “Spot Loan Approval” process. According to HUD “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.” But this new approval process may add a significant amount of time to the approving a Condo Project compared to the current quick “Spot Approval” process. Current loans in process may be in jeopardy because lenders may be worried they may not be able to sell “spot approved” loans back to FHA if they don’t get submitted soon enough.
I’m sure there will be a number of real estate professionals (are you listening NAR?) who will challenge the elimination of the Spot Loan Approval process that has given quick and needed financing options to quality condos on a case-by-case basis.
About the Author: Jim Reppond
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19 Responses to “FHA Condo Approval Process – MAJOR Guidline Changes”
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[...] Bookmarked a link on Delicious. FHA Condo Approval Process – MAJOR Guidline Changes | Seattle Real Estate | Rain City Guide [...]
Jim – What changes will this have on condominium communities currently involved in a lawsuit and for condominiums with the right of first refusal? We have a lot of projects here that have been established for decades that are getting shafted because they aren’t FHA approved due to right of first refusal. Have they stated whether the new approval process will be instantaneous or will this cause a massive backlog due to an influx of approval requests?
[...] Fast forward to the 25th, the bill has been sponsored and referred over to the House Committee of Financial Services. There has only been one other House Rep. willing to co-sponsor the bill so far; Rep. Gary Miller (D-Calif.). If there’s any hope left that someone is watching over real estate and thinking “Gee, that wasn’t a good idea!” the bill might pick up steam as it moves through the House. I’m especially hopeful that they move on this quickly as a huge influx of previously pent up FHA buyers descend onto the condo market in October 2009 to take advantage of the $8,000 home buying credit in conjunction with newly lightened up FHA guidelines. [...]
Josh – Once a Condo Project has an unconditional Direct Endorsement by a Lender and is added to the FHA Approved Condo List, in most cases the “Right of First Refusal” will no longer be a reason for declining approval of a Condo Project. This is according to Brian Montgomery, Assistant Secretary for Housing, Federal Housing Commissioner. You need to check with the Feds to confirm the details of this because it is still being worked out.
[...] FHA condo approval process – MAJOR guideline changes – Come October 1st there are going to be some major changes for FHA guidelines on condos. Make [...]
Jim, thanks for the update on this. Here in Vancouver condos are an important element to the housing mix, especially to both curb the sprawl that has taken place, and to enable some nice brownfield redevelopments, such as the one taking place on the Vancouver waterfront where the Boise Cascade paper-mill once stood. I hope our Washington State delegation is mindful of this. John
[...] be no spot approvals for condominium or PUD units. Jim Reppond wrote an excellent article on Rain City Guide regarding those changes. There are major changes on the way for developers of condo projects and [...]
FYI, here is the official website that has the list of FHA approved condos:
https://entp.hud.gov/idapp/html/condlook.cfm
Also, I heard that all of the currently approved condos (approved before 2008) will have to be re-certified before an FHA loan will be approved? If that is true the entire condo market will suffer serious set backs.
Its true that existing condos will need FHA approval. No more “spot” approvals. In addition, all condos approved prior ot 10/08 will need recertification. I can help. Contact me at steve@condo-approval.com. Or by phone at (847)293-2962.
[...] was a request for information on the new FHA Condo changes. Here’s a nice blog post summary from Jim Reppond on RCG. Deadline has been pushed forward to Dec 1, [...]
Jim,
The new letter that was put out by HUD on 11/6/09 states that “projects that received approval prior to October 1, 2008, will require recertification on or before December 7, 2010.” Do these projects that were approved prior to 10/1/08 have a grace period of exactly one year from when the new guidelines become effective? In other words, are we to assume that these projects will be acceptable by FHA until 12/7/10? It doesn’t make sense considering that the intitial requirements for approval of these projects were different from the new requirements.
Condos that were approved prior to 10/08 will need recertification prior to 12/2010 or they will fall off of the approved list. This means that they will then need to reapply for approval if they haven’t been recertified. In the case of these condos, FHA will require recertification prior to closing their next FHA loan. You will begin to see recertification required on the remarks section of the approval if you look it up on the HUD website. I can help those that need to get their condo recertified or even approved. My company, Condo Approval Professionals, specializes in this area.
Steve Stenger
President
E-mail: steve@condo-approval.com
Steve, thanks for your reply. The language in HUD’s letter is hardly explicit and leaves a lot of room for interpretation. However, your interpretation of the letter’s inent makes sense. Is there really a difference between recertification and reapplying?
Yes, recertification is a much smaller and easier process. Reapplying would require submission of the Declaration of Condominium Ownership and all of the other documents required for full project approval. I can help you with either process.
if a condo does not operate with an account of reserves to keep the maintenance payment low then is this condo not approved?
A condo must have a 10% reserve contribution in their budget. FHA doesn’t verify if the association has any money currently in their reserve account.
Kind regards,
Steve Stenger
President
Condo Approval Professionals LLC
(847)293-2962
E-mail: steve@condo-approval.com
Jim, it’s my understanding that today is the last day to have an FHA case # issued prior to this Mortgagee Letter going into effect (it was extended from when this post was originlly written).
Actually, the last day to get a case # to do an FHA spot was last Friday. From now on a condo association must be approved by FHA in order to offer FHA financing in that community. I can help you with this process. My company, Condo Approval Professionals LLC, specializes in this process.
Sincerely,
Steve Stenger
President
Condo Approval Professionals LLC
(847)293-2962
E-mail: steve@condo-approval.com
Well, we are now in the era of no spot approvals. Let’s see how this all shakes out. The next shoe to drop is the increased mortgage insurance premium starting in April. I bet there will be some more government-inspired mandates coming as well.