New Guidance on FHA Condominium Approval Process   5 comments

As we have been reporting, the ongoing saga regarding the oversight and approval of condominiums continues . . .

On November 6, 2009, the Fair Housing Administration (“FHA”) published Mortgagee Letter 2009-46B regarding the implementation of a new approval process for condominium projects and insurance requirements for mortgages on individual units within condominiums. The new Mortgagee Letter will be effective for all case numbers assigned on or after December 7, 2009. This new letter replaces the guidance provided in Mortgagee Letter 2009-19.

In summary, lenders will be allowed to determine project eligibility, review project documentation, and certify compliance with FHA’s regulations. FHA will still maintain a list of approved condominium projects, too. However, lenders will need to retain ALL project legal documents, contracts, conveyances, plats, plans, insurance coverage, presale and owner occupancy conditions and other documentation in connection with their review and approval of the condominium project.

More guidance will be provided by FHA on this front, but projects that received approval between October 1, 2008 through December 7, 2009 will need to be recertified. Projects older than October 1, 2008 must be recertified before December 7, 2010.

Hopefully, lenders will be aware of the significance of the liabilities they have in this process. They will be responsible for “material deficiencies associated with” project approval and any loan they originate or underwrite. Even relying on another lender’s approval will have some responsibility in this process and will be required to have a loan level certification (which includes reviewing and verifying the condominium’s continued compliance with the initial approval requirements). Each lender will be required to submit their first five “DELRAP” approvals for review by the Homeownership Center. In addition, lenders need to keep in mind that there are fines
(up to $1,000,000.00) and imprisonment (up to 30 years) that can arise from making false, fictitious or fradulent statements, as well as civil liability.

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5 responses to “New Guidance on FHA Condominium Approval Process

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  1. Question:
    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.

    • At the end of Mortgagee Letter 2009-46B, there is a “transition strategy” that is outlined. It says:

      “FHA will move all currently approved condominium projects to the new approval list and FHA Connection database. The following requirements are applicable based upon the date of the initial project approval. Additional guidance on new data entry requirements will be issued in a separate ML.

      *Projects that received approval prior to October 1, 2008, will require recertification on or before December 7, 2010.

      *Projects that received approval between October 1, 2008 through December 7, 2009 will follow the recertification requirements defined in the Project Approval Section, XIII.

      Recertification of approved condominium projects may be processed by HUD using HRAP or by a mortgagee under DELRAP. The DELRAP option is only available to lenders who have unconditional Direct Endorsement authority and staff with knowledge and expertise in reviewing and approving condominium projects.”

      Keep in mind that Mortgagee Letter 2009-46A was issued at the same time as Mortgagee Letter 46B and gives temporary guidance for condominium project eligibility as a temporary reponse to the current state of the market. ML 2009-46A only applies to projects that have FHA case numbers that are assigned on or after December 7, 2009 through December 31, 2010, except as noted for the spot loan approval process. (ML 2009-46B did away with the spot loan approval process, except that it won’t really go away per ML 2009-46A until February 1, 2010.)

  2. Was your comment in response to my question? My question is still not answered. To clarify, the letter states that condos that obtained FHA approval prior to 10/1/08 must be recertified on or before 11/7/10.

    So, let’s use a hypathetical situation. A borrower wishes to purchase a condo inside a complex that obtained FHA approval in 2002. This borrower’s FHA case number will be assigned on 3/1/10. What is required of the borrower’s lender with regard to the new guidelines.

    Also, what happens if the condo projects that obtained FHA approval prior to 10/1/08 do not get recertified prior to the 11/7/10 date.

    • In answer to your question arising from your hypothetical, from my read of Mortgagee Letter 2009-46B it appears that the then-current guidelines will need to be followed to obtain “re-approval” of a condominium project. In the case of your hypothetical, given that it is a project with a case number issued 3/1/10, the adjusted requirements of Mortgagee Letter 2009-46A appear to apply (adjusted concentration level, owner-occupancy requirement, pre-sale requirements, FL condo approval).

      While I did not see language that expressly says it, it looks like projects that do not get re-approved will no longer be considered approved anymore.

      However, you should contact your legal counsel to verify my analysis and also recognize that this appears to be a fluid situation. Given the current climate, there may be additional modifications that come out in the future that affect the situation.

  3. Pingback: FHA Approval Changes & Condo Associations « Andersen, Tate & Carr, P.C.

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