Louisville Mortgage Leader: FHA Condo Approval Process- Effective 10-1-09

Newsletter October 22, 2009

Re: Mortgagee Letter 2009-19

FHA issued the above Mortgagee letter and it's a doosie....(technical mortgage term for 'you know what' hitting a fan.)

Here it is in a nutshell:

This new guidance for the condo project approval is effective for all case numbers assigned on or after Oct 1 2009. So if a case number was ordered on a property before Oct 1 2009 it can use the old condo approval and guidance, including doing a spot approval.

Effective for case numbers assigned on or after Oct 1 2009:

The spot approval process for condo projects is eliminated.
All current condo project approvals will be invalid (w/exception of projects approved on or after Oct 1 2008) and projects must be re-approved under the new options available. Going forward, ALL projects will require recertification every two (2) years.

Yes… it's as ugly as it sounds. As of October 1 the slate was wiped clean and the only projects left on the FHA approved list will be the ones approved on or after Oct 1 2008, which won’t be many. (by the way...this is an IMPORTANT detail that is not disclosed in the Mortgagee Letter but was explained by HUD personnel in a conference call.) Once a project gets on the approved list, it will require recertification every two years after that. There will be no more continuous approvals.

HUD will accept approval packages for review from

Lenders (or)
Builders/Developers

Getting projects back on the approved list will be a long and slow process. AND until a project is approved, FHA financing is not an option.

The approval processing options apply to projects that are

Proposed/Under Construction
Existing Construction
Conversions

Projects of four or more units will have no more than 30% of total units insured by FHA

This is where you will need to do your homework- If your project is currently already over the allowed FHA loan concentration (> 30%), an approval request is futile.

Condo Conversions

Projects undergoing remodeling or rehab must be 100% complete, including common areas, before FHA will endorse. Escrow provisions will be permitted for weather related delays on common areas only.

New Construction

New Construction condos will no longer require an Early Start Letter or a 10 year warranty plan where a building permit and certificate of occupancy are issued by a local jurisdiction that performs a minimum of three inspections (typically footing, framing and final).

Going Forward

Going forward, approvals will expire two years from the date it was placed on the approved list
Project will require recertification by a lender

Lender Will Recertify and Research

Compliance with owner-occupancy requirements
New unacceptable risk conditions
Pending special assessments
Pending legal action
Hazard and liability insurance and flood insurance if applicable

I know our world has been turned upside down because of all of this. It seems like all we do is talk about and deliver bad news. A lot of this is clear as mud right now and it will take a little bit of time before we can do FHA loans on condos, but at some point we will start doing them again once we can help you get your projects approved.

Contact us for the new Project Eligibility Requirements and if you have questions about your particular condo project.

We would love to be of service to you and help expedite the approval process.