There could be a rush of reverse mortgage applications for condominiums in the next few months as the Federal Housing Administration eliminates spot loan approval for unapproved condo projects and potentially thousands of approved projects will need to be recertified.
But direct endorsement lenders can, for the first time, approve condominium projects, according to new FHA condominium mortgage guidance.
The Department of Housing and Urban Development issued mortgagee letter 2009-19 on June 12 implementing a new approval process for all FHA-insured condominium mortgages, including home equity conversion mortgages. The changes are in accordance with the Housing and Economic Recovery Act of 2008.
Effective Oct. 1, all condominium projects will need approval in order for mortgages to be insured, said a HUD homeownership center staff member. But once a project has been approved, the lender can underwrite the loan for a condo unit.
However, a project’s approval will expire two years after it has been placed on the HUD list of approved condominium projects and will need to be recertified, the mortgagee letter said. This includes all projects currently on the list. The HUD employee said the list contains approximately 40,000 condo projects nationwide.
Lenders with unconditional direct endorsement authority and staff expertise in approving condominium projects will have the option to determine project eligibility, review project documentation and certify compliance with HUD regulations. Or HUD could provide project approval.
But site condominiums, detached single-family homes encumbered by a declaration of condominium covenants or form of ownership, will not need project approval, the letter said. This provision is effective immediately.
Manufactured homes in condominium projects became eligible for FHA mortgages effective May 21, according to mortgagee letter 2009-16. However, only HUD, not lenders, can approve manufactured housing condominium projects, letter 2009-19 said. They may not be processed as site condominiums.
