New FHA Condo Rules

Our favorite lender, Ruth Bucher with Prosperity Mortgage, just gave us this new information that could be really importatnt to both condo buyers and sellers:

FHA announced several changes last year in their Mortgagee letter to address changes in the Condo Project Approval process.  One important change was the elimination of “spot approvals” and that the entire project would have to be approved in order for a unit in that project to receive FHA financing.  Another major change that initially many didn’t realize the importance of, was that each project would now have to be recertified every two years.  Prior to these changes, if a FHA condo project was approved in 1993, it was in essence approved for life.  In recent years, we would have to send an FHA checklist to the condo management company to make sure that the owner occupancy/investor ratios were still acceptable, delinquency rates were below 15%, and the project is not involved in litigation. 

Condo Projects that obtained their FHA approval status prior to October 1, 2008 (which is roughly 80%-90% of condo projects) will need to be recertified by December 7, 2010 or they will lose their FHA approval status.  If you have recently checked to see if a condo project is FHA approved on the HUD website, you might be familiar with this date as the date of expiration, as it is for most of the projects.  If a condo project was issued an approval after October 1, 2008, the approval is good for 2 years from the date the approval was issued.

HUD has not done a very good job and getting this message out to condo projects, lenders, realtors and everyone else that will be effected.  FHA case numbers will not be assigned in projects whose FHA approval has expired.  My fear is that many condo projects are not aware that they need to recertify in order to keep their approval status, especially the ones that have been approved for several years. 

If a project was initially approved prior to January 1, 2000, a full project approval is required. 

If a project was initially approved on or after January 1, 2000, the project is eligible for the streamlined recertification process. 

Projects can start to be recertified 6 months prior to the expiration date or within 6 months after the expiration date and be eligible for the streamlined recertification process.  If a project waits longer then 6 months after their expiration date, a full approval will be needed. 

Fortunately, Prosperity Mortgage is a FHA direct endorsement lender, which allows us on behalf a condo project to submit the necessary paperwork for recertification or full approval and receive that approval within 7-10 business days from the time all documents are received.  This same process going through HUD directly takes 4-6 weeks. 

I am attaching the forms for the streamlined project recertification and for full project approval to this email.  Quite frankly, there is not that much less documentation required for the streamlined recertification then for full approval. 

Moving forward, I think as agents it would be a good idea to check with condo projects to make sure that they are aware when their FHA project approval expires and if they have started the recertification process.  As I mentioned before, I’m sure many of them have no idea what needs to be done or when their project approval expires.  The expiration date is only a month a way and we need to make sure that these projects are up to speed on HUD’s requirements, especially considering any future contracts that we might be writing. 

One important question that I have and posed to the higher ups within Prosperity Mortgage is whether or not the loan would have to close prior to December 7th, 2010 or if a FHA case number has to be assigned by this date.  I will pass that information on as soon as I receive an answer.  I personally have had two of my closings that were scheduled after December 7th pushed up a week to before December 7th, due to the uncertainty. 

I am hoping HUD releases some more information on this topic to address the several condo projects that will be ineligible for FHA financing in a month.  I will keep you posted with any new news.

Regards,

Ruth A. Griel (Bucher)

Mortgage Consultant

Prosperity Mortgage Company

7202 Old Keene Mill Road

Springfield, VA  22150

703-452-3936 Tel

866-682-4403 Fax

703-795-3107 Cell

ruth.bucher@prosperitymortgage.com

NMLS 316546