FHA New Condo Approval Process

FHA Announces a New Condo Approval Process (ML 2009-19) Link to Mortgagee Letter » Notable Dates: Case numbers assigned on or after October 1, 2009 Single family detached condominiums—effective immediately Industry Participants Affected: Builders, Realtors, FHA DE Lenders and FHA Correspondents Synopsis: Single-family, detached residences legally classified as condominiums no longer require condo approval. These are known as “site condos,” and this change is effective immediately. Effective October 1, 2009 there will be two (2) options for review and approval of condominium units in non-FHA pre-approved condo projects. Both of these options can be used for proposed/under construction units, existing construction or conversions. The current spot condo approval process will be eliminated. Option 1: HUD Review and Approval Process (HRAP) – if this option is used, Environmental Review is not required within certain parameters. Option 2: DE Lender Review and Approval Process (DELRAP) – this option is only available to lenders who have unconditional DE approval, and staff with knowledge or expertise in reviewing and approving condominium projects. Environmental Reviews are not required with this option, but the lender must mitigate or avoid many conditions before completing review process. Mortgagee Letter 2009-19 should be read, in its entirety, for these details. A DE lender’s first five DELRAP approvals must be submitted to FHA for review for quality assurance purposes. Projects must be in full compliance with applicable state law requirements of the jurisdiction in which the condo project is located and with all other applicable laws and regulations. The DE lender is required to retain all project legal documents, contracts, conveyances, plats, plans, insurance coverage, presale and owner occupancy conditions in connection with their review and approval of any unit. The DE lender must be able to provide this documentation upon request by HUD staff. Project approval is NOT required for FHA to FHA Streamline refinance transactions, or FHA/HUD REO Division sales. Project eligibility criteria include: Projects, consisting of 2 units or more, covered by hazard and liability insurance No more than 25% of total floor area in project is designated as commercial use No more than 10% of units owned by one investor No more than 15% of total units can be in arrears of condo association fees At least 50 percent of units must be sold; 50% of units must be owner-occupied (if under construction 50% pre-solds) and legal phasing is permitted If the project is 3 or less units, only 1 unit can be FHA insured; If more than 3, the project is limited to total of 30% FHA insurance concentration Conversion projects no longer require the one year waiting period Manufactured homes projects are eligible but the DELRAP option for lender delegated approval is not available This new condo approval process does have benefits to the industry. Unconditional Direct Endorsement Lenders will now be able to process their own condo unit approvals and the delay for the HOC centers to review/approve will be eliminated. This can dramatically increase lenders’ turn times for non pre-approved condos.