Northwest Condo & HOA Law Blog : Washington & Oregon Construction Defect Lawyer & Attorney : Barker Martin Law Firm : HOA's, Condos : Seattle, Portland

On November 6th, the Federal Housing Administration (FHA) finally issued major changes to its revised guidelines on mortgage insurance requirements for condominium associations.  The original guideline revisions were first proposed back in June (under Mortgagee Letter 2009-19).  The new guidelines go into effect on December 7, 2009; however, some of the requirements are phased in through January 31, 2010.

If you have been a reader of this Blog over the past couple of months, you are aware of the controversy and uncertainty involving HUD/FHA's proposed requirements for obtaining FHA mortgage insurance for condominiums.  The newest guideline revisions are in response to the strong reaction from condo owners and industry representatives who saw many of the FHA requirements as counter-productive and burdensome to condominium associations and owners.

The latest guidelines are described in two separate HUD/FHA documents:  (i) Mortgagee Letter 2009-46B (the revised guidelines for FHA approval of residential condominium projects); and (ii) Mortgagee Letter 2009-46A (temporary guidance for condominium approvals).

In short, Mortgagee Letter 2009-46B replaces Letter 2009-19.  The temporary guidance (Letter 46B) acts as a buffer to ease transition from the old to the new regs.

Under the Temporary Guidance:

• The "Spot Loan" approval process will continue through January 31, 2010; and
• The 30-percent cap on FHA loans per condo project will be expanded to 50 percent temporarily (Letter 46A does not state the termination date of this extension), with concentrations increased to 100 percent if certain additional conditions are met (as enumerated in the Letter).

I believe the most noteworthy changes to the New Guidelines are as follows:

• Condominium project approval is not required for condominiums that are comprised of single-family totally detached dwellings (no shared garages or any other attached buildings).
• Reserve funding:  From the previous requirement of at least 60% of the fully funded reserves to a new requirement consisting of at least 10% of the association's annual budget (see next bullet below).
• Budget review:  The review must determine that the budget is adequate and: (i) includes allocations/line items to ensure sufficient funds are available to maintain and preserve all amenities and features unique to the condominium project; (ii) provides for the funding of replacement reserves for capital expenditures and deferred maintenance in an account representing at least 10% of the budget; and (iii) provides adequate funding for insurance coverage and deductibles.
• The 1-year waiting period for conversion condominiums is eliminated.

Transition Strategy:

• FHA will move all currently approved condominium projects to the new approval list and FHA Connection database.
• Projects that received approval prior to October 1, 2008, will require recertification on or before December 7, 2009.
• Projects that received approval between October 1, 2008 and December 7, 2009, will be "grandfathered" and will have to follow the new guidelines' recertification process (recertification required every two years).

Summary:

Because the Administration is extending the "Spot Approval" process through January 31, 2009, we highly recommend any association that was contemplating obtaining FHA certification to act without delay before the comprehensive certification process is enacted.  Any Oregon or Washington condominium association that desires assistance in this endeavor can contact one of our attorneys by selecting the "Contact" tab at the top-right of this page.

Barker Martin will offer a Webinar on this topic in the near future (we will post on our website homepage the date/time of the upcoming seminar).

• Email This
• Print
• Comments
• Trackbacks

In February, I wrote about stiffening mortgage underwriting polices adopted by mortgage lenders on loans for condominium purchasers.  This rule tighten was a direct result of the sub-prime lending crisis plaguing our nation's banks and lending institutions.  These changes included Federal National Loan Association ("Fannie Mae") altering its lending policies on condominiums to include a Full Review Required.

Under the Full Review, lenders are now required to assess the financial strength of condominium owners associations, as well as the credit and assets of the individual prospective condominium purchasers.

The new rules require full project reviews for loans to individuals purchasing units for primary residences or second homes and for loans to investors buying condominium units.  Another significant change is that single loans in existing communities will be allowed only for borrowers who make a miminum down payment of 10%; the former policy allowed "zero-down" loans.

Under the new policy, lenders must verify and warrant to Fannie Mae that:

• The homeowners association maintains an "adequate" budget;
• The budget allocates at least 10% of annual revenues to reserves;
• The homeowners association holds funds equaling the deductible under the master insurance policy; and
• No more than 15% of the common area fees are delinquent by more than one month.

As I wrote earlier this year, the downturn in the economy and change in lending laws require association boards of directors to pay particularly close attention to:

• (a) disclosure requirements for condominium resale certificates (in Washington only);
• (b) managing accounts receivables;
• (c) overseeing rental restrictions; and
• (d) following strict collections policies.

These requirements are no less important with the recent lending rule changes adopted by Fannie Mae.  With the large number of foreclosures and owners who are falling behind on paying asessments, it will be especially problematic for associations to stay above the 15% delinquency rate mandated by Fannie Mae.  Furthermore, the budget and reserves funding requirements may exceed those required under both the Washington and Oregon Condominium Acts (thus, a board may be following the law and still run afoul of Fannie Mae lending rules).

If you have specific questions regarding your how your homeowner association can best comply with these requirements, feel free to contact Barker Martin, P.S. by selecting the "Contact" tab at the top of this blog page.  

• Email This
• Print
• Comments
• Trackbacks