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).
