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

The last unanswered question I had regarding the new FHA guidelines involved the difference between the Direct Endorsed Lender Review Approval Process (DELRAP) and the HUD Review Approval Process (HRAP).  In reviewing and analyzing the provisions promulgated in HUD Mortgagee Letter 2009-46B, the guidelines explained in detail the DELRAP process, but did not describe the precise submission process for HRAP.  The attachments to the letter, including the “Lender Certification,” only referenced DELRAP, so, my colleagues and I were unsure exactly who could submit a HRAP package. Under the old “spot approval” process, essentially anyone acting on behalf of an association or owner could.

When we first raised the question with the regional supervisor in Southern California, he stated they were still interpreting the proposed guidelines and were waiting on further information from DC. But now that the guidelines are in effect, and having spoken directly with the regional manager, we have our answer.

Similar to the former guidelines, there is no specific limitation as to who can file a HRAP package. The HRAP submission no longer requires an attorney opinion letter, but must comply with the strict guidelines contained within Mortgagee Letter 2009-46B.

We still recommend an attorney or other person with expertise in the FHA condominium certification process handle HRAP packages. If you have any questions on the process or would like an attorney from Barker Martin, PS to spearhead a package for your Oregon or Washington condominium association, select the “Contact” tab at the top of this blog page.

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Because I have received so many inquiries and questions regarding my recent posts on the new HUD/FHA Condominium Guidelines, I thought I would keep our readers apprised on the latest developments over at FHA.

A number of important changes were announced yesterday by the FHA to reduce risk and improve its finances:

• The upfront mortgage insurance premium (MIP) will be raised from 1.75 percent to 2.25 percent.
• The minimum down payment will climb from 3.5% to 10% for applicants whose Fico score is below 580.
• Allowable seller concessions will be reduced from 6% to 3%.
• The FHA also plans to request legislative authority to increase the maximum annual mortgage insurance premium so it can reduce upfront costs for prospective home buyers.

The complete FHA announcement can be found here.

The proposed changes, which apply to all FHA loans, are expected to go into effect in either spring or summer 2010.

Additionally, the agency will continue to increase enforcement on FHA-approved lenders, and will publicly report lender performance rankings to improve transparency and accountability.

Lastly, based on anecdotal information provided by industry persons, I have reported that up to 40-50% of single-family residence loans will be FHA insured in the near future.  I read this week in several blogs (but have not been able to confirm through the FHA) that in 2009, 30% of mortgages and 20% of refinances were FHA backed.  So my initial estimates may not be too far off. 

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Under revised guidelines effective October 1, 2009, the FHA is implementing a new approval process for condominiums to be eligible for FHA / HUD financing. Under the new guidelines, the spot approval process will no longer be available, and approvals expire every two years.  Click here to see a copy of the HUD Notice.

 - Historically, to utilize HUD / FHA financing, a condominium could, under certain circumstances, receive “spot approval” for lending with HUD / FHA, or the association was required prepare and submit a comprehensive package of materials for consideration for “permanent” approval. 

 - Under the October 1, 2009 guidelines, FHA will allow lenders to determine project eligibility, review project documentation, and certify compliance with the National Housing Act requirements. We expect lenders will approach association boards and managers, asking for certain information, certifications, and even legal opinions regarding compliance with certain legal requirements.

 - If a condominium is not on the FHA-approved list, or has lost its approval because it underwent repairs or litigation, or for some other reason, the board of directors may wish to consider applying for approval (or re-approval).  

The attorneys and staff at Barker Martin, P.S. are ready to help your association adjust to these changes.  Just select the “Contact” tab at the top of this blog page to reach one of our attorneys.

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[Associate David Silver conducted research and assisted me with this post--thanks, Dave!.]

In recent months, I have posted several articles discussing various aspects of condominium and HOA mortgage lending in the wake of the present housing and financial crisis. In early April, I blogged about Congress’ attempts to pass a mortgage modification bill, and, later that month, discussed the effect Fannie Mae’s rules regarding pre-sale of condominium units have had on local markets. Lately, we have received a number of questions on a related topic: condominium projects and FHA-approved status.     

Although only a hunch, we attribute this heightened interest in FHA-approved status to the fact that until mid- to late-2008, there were a wide variety of non-FHA, non-conforming mortgage alternatives available (e.g. Alt-A, Non-Income Verified, No-Doc, 100% purchase-money second loans, etc.) to condominium unit buyers. Plus, following the evaporation of those creative mortgage products, the housing market has been generally slow. Consequently, when there were a slew of other mortgage options, potential purchasers did not have to rely so heavily on mortgages underwritten and approved by FHA. Now, however, with most of the “portfolio,” or “non-conforming” mortgage programs discontinued (and transactions picking up, if ever so slightly), FHA underwritten financing has become increasingly attractive—and may be a purchaser’s only option.

If a condominium is not on the FHA-approved list, or has lost its approval because it underwent repairs or litigation, or for some other reason, the board of directors should consider applying for approval (or re-approval, whatever the case may be). You can look to see whether a condominium is approved on the HUD Homes & Communities website located here.

Keep in mind that in some situations, limited “spot-approval” may be obtained by certain buyers for condominiums not otherwise approved.

Currently, HUD is backlogged a month or more in reviewing submitted applications. Thus, should your condominium need to be submitted for approval, keep in mind the process may take some time. Moreover, the work to compile and complete the application package itself can take weeks, and require the board, its manager, and legal counsel to gather data, documents, and expert opinions required for FHA approval. The package of materials that must be submitted can vary from condominium to condominium, and often requires an updated reserve study and certain legal opinions. 

For further information on FHA approval requirements, or other issues related to condominium associations, feel free to contact Barker Martin, P.S. by selecting the “Contact” tab at the top of this blog page.

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