Development Law Group Update: FHA Releases Revised Condominium Guidelines
The issuance of FHA Mortgage Letter 2009-19 in June of 2009 raised a host of concerns about condominium mortgage insurance among condominium developers, lenders and associations. In response, FHA temporarily pushed back the effective date of the new guidelines while it analyzed the responses it received. FHA has now issued two mortgagee letters which address many industry concerns.
On November 6, 2009, FHA issued Mortgage Letter 2009-46A, Temporary Guidance for Condominium Policy, and Mortgage Letter 2009-46B, Condominium Approval Process for Single Family Housing, replacing the earlier proposals. The revised Letters address a number of industry concerns.
Mortgage Letter 2009-46A provides temporary relief from some of the stricter requirements of Mortgage Letter 2009-46B. For example:
- The elimination of the Spot Loan Approval Process is deferred until February 1, 2010, after which it will no longer be available.
- The concentration level of FHA loans in a given project is increased to 50% (100% for certain projects) until January 1, 2011, when it is reduced to 30%.
- The owner occupancy requirements of 50% will exclude bank real estate owned units until January 1, 2011.
- The presale requirement (at least for new construction projects) is reduced to 30% until January 1, 2011, when it increases to 50%.
Most of the changes are already in effect, including:
- Project approvals will expire after two years, at which time they must be recertified. Projects approved before October 1, 2008 must be recertified by December 7, 2009.
- Projects may now be reviewed either by HUD under the HUD Review and Approval Process (HRAP) or by a lender under the Direct Endorsement Lender Review and Approval Process (DELRAP).
- No more than 10% of the units may be owned by one investor, or for projects with 10 or fewer units, no single entity can own more than one unit.
- No more than 15% of the units in a project may be more than 30 days past due in condominium assessments.
- The one-year warranty requirement for conversion projects has been eliminated.
The Community Associations Institute has prepared a good summary of the new regulations here.
If you have any questions, you can contact any member of the Stoel Rives Condominium Group, or