« articles »
Seek FHA’s Approval
condo projects with expired certifications may
provide a new pipeline of business
Because Federal housing admin- istration (Fha) financing ac- counts for a large percentage of
the first-time homebuyer market — and
condominiums are popular with first-time homebuyers — it’s essential for
mortgage brokers and originators to be
aware of the significant condominium
policy and procedural changes that
have been implemented by the Fha in
the past few years.
More important, brokers and originators must be aware that, at the present
time, there are hundreds of previously
Fha-approved condominium projects
that have failed to submit the required
documentation to get recertification.
The end result is that their Fha approval has expired, thus preventing
current owners from selling their units
to borrowers who are seeking Fha financing — even if those owners have
Fha-insured loans on their properties.
By partnering with homeowners associations (hOas), developers and other
parties to get these approvals, mortgage professionals could open up a
significant new source of business.
Before outlining the current procedures for getting Fha approval and
recertification of a condo project, it’s
helpful to understand the policies and
procedures that were in effect before
2009, when obtaining Fha financing
for a condominium unit was comparatively easy. What occurred in 2009
was essentially the elimination of the
spot-loan process, as implemented by
the Fha in 1996.
Under this process, mortgage lenders could originate and underwrite
an Fha-insured loan transaction on a
On the Web
To see the impact that the Fha’s
policy changes have had on condominium projects in your state,
follow these four steps:
1. visit fha’s website:
2. click on “search for fha-
3. enter your state under the
appropriate drop-down box.
4. The condominium projects
that have had their fha-approval status expire will
be noted as such in the right-hand column.
condo unit that was located in a project that did not have previous Fha
approval. Lenders were instructed to
address a number of items on a suggested checklist and, if everything
was found to be acceptable, those
lenders could close the loan and have
it insured without the project itself being approved.
as a result, many condo units got
Fha insurance when, in fact, the project in which they were located had
substantial problems — enough that
these should have rendered the project ineligible for Fha financing. These
problems likely would have been uncovered with a more in-depth review of
the project’s legal and financial documents, as is now required under current procedures.
Upon issuance of Mortgagee Letters
2009-46(a) and 46(B), the Fha effectively eliminated the spot-loan process.
as a result, lenders were advised that,
on purchase transactions, Fha financing on a condo unit only would be available if the project was on the Fha’s
In this regard, condo projects now
can be approved by two methods:
the U.S. Department of housing and
Urban Development (hUD) review
and approval Process (hraP), and the
Direct Endorsement Lender review and
approval Process (DELraP). One of
these two methods also must be used
to process annexation requests, as well
all project approvals from the Fha
expire two years from the date of their
placement on the list of approved condominiums. although this policy has
been in effect for many years, hUD
homeownership centers (hOcs) lacked
the resources to perform substantive
project recertification reviews for each
and every previously Fha-approved
project, especially because hOcs simultaneously had to perform approvals
for projects that were already in place.
Upon the issuance of Mortgagee
Letters 2009-46(a) and 46(B), the processing of condo project recertifications now can be processed under both
hraP and DELraP methods, however.
The recertification process begins six
months before the approval’s expiration date, with the added availability
to recertify until six months after an
approval’s expiration. Extensions were
initially granted by hUD for many of the
previously approved condo projects
to get recertification, but these extensions now have expired.
That, in turn, has brought us to
the current situation: There are now
hundreds of previously Fha-approved
condo projects that have not been recertified. To complicate matters, if a
project has not recertified within six
months of its expiration, a full project
approval under hraP or DELraP methods is required.
In processing a recertification request,
the hraP or DELraP reviewer will
make a determination as to whether
or not the project is still in compliance
with hUD’s eligibility requirements.
Furthermore, the reviewer must determine that no conditions currently exist
that would present unacceptable risks
to Fha’s investment.
By gerry glavey
Senior vice president
• The condominium project must be
covered by adequate hazard, flood,
liability and fidelity insurance. If the
given hOa doesn’t maintain complete
coverage of hazard insurance, unit
owners are not permitted to use gap
insurance to meet this requirement.
• a right of first refusal is allowed,
barring that it violates the Fair
housing act’s discriminatory conduct
Finally, a project’s financial documentation has to demonstrate the
availability of sufficient funds to provide all features and amenities that
are unique to the project. In addition,
the project’s financial documents must
demonstrate the existence of requisite
“There are hundreds of previously
FhA-approved condominium projects that
have failed to submit the required documentation
to get recertification. The end result is that their
FhA approval has expired, thus preventing
current owners from selling their units to
borrowers who are seeking FhA financing.”
With this in mind, it’s important for
mortgage professionals to be aware of
the most crucial points of Fha’s project-approval criteria, as outlined in hUD’s
condominium Project approval and
Processing Guide. These key points require the following:
• The condo project must consist of
at least two units.
• no more than 25 percent of a project or unit’s floor area can be used
for non-residential purposes.
• no more than 10 percent of the total units may be owned by a single
investor. By extension, in the case
of projects that contain 10 or fewer
units, no single investor is permitted
to own more than one unit within the
• no more than 15 percent of a project’s units can be more than 30 days
past due on their hOa fee payments.
Under the hraP method only, exceptions will be considered for as much
as 20 percent.
• at least 30 percent of the units are required to be sold before the endorsement of a mortgage on any unit.
• at least 50 percent of a project’s
units should be owner-occupied or
sold to owners with the intent of occupying the units.
• in cases where more than 50 percent of a project’s units are fha-insured, the fha won’t insure any
units at all. Furthermore, new case
numbers will not be issued by the
Fha once a project has reached the
50 percent threshold.
funds for insurance coverage and deductibles, as well as enough funding for replacement reserves that are
dedicated to capital expenditures and
deferred maintenance. These replacement reserves must be in an account
representing at least 10 percent of the
• • •
Proactive mortgage originators now
have a unique opportunity to work with
hOas in getting Fha approval for their
projects. hundreds of previously ap-
proved condo projects being past their
approval expiration could provide a
major new source of business for deter-
mined mortgage professionals.
The effort that goes into this process
could result in many new Fha loan transactions, as well as countless new condominium owners being able to sell their
units to Fha borrowers. In short, the current situation is rife with opportunity for
everyone involved — whether loan officer, broker, homebuyer or seller. •
gerry glavey is senior vice president at UhS
america, a leading nationwide quality-control
and consulting firm specializing in residential
mortgage services, including post-funding
audit, on-site hUD-simulated audit and
comprehensive training in mortgage credit and
appraisal. Glavey leads the East coast division
based in Philadelphia. Formerly with the U. S.
Department of housing and Urban Development (hUD), his most recent role was director,
processing and under writing division, homeownership center. reach Glavey at gerry@
uhsamerica.com or visit uhsamerica.com.