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New Condo Approval Process

Posted by Nancy Comenitz on Wednesday, July 22nd, 2009 at 12:12pm.

On June 12th The Federal Housing Authority (FHA) issued Mortgagee Letter 2009-19 announcing major changes to their Condo Approval Process.

"In accordance with the passage of the Housing and Economic Recovery Ace (HERA) of 2008, the Federal Housing Administration (FHA) is implementing a new approval process for Condominium projects to insure mortgages on individual units under Section 203(b) of the National Housing Act. FHA will now allow lenders to determine projects eligibility, review project documentation, and certify to compliance of Section 203(b) of the NHA and 24 CFR203 of HUD's regulations. Hud will continue to maintain a list of approved Condominium Projects. The requirements of this mortgagee letter are effective for all case numbers assigned on or after October 1, 2009 except as noted."

The new approval states "The lender will have two condominium project approval options. The applicable documentation requirements will be the same for each option:

1. HUD Review and Approval Process (HRAP)

2. Direct Endorsement Lender Review and Approval Process (DELRAP), outlined in this mortgage letter. This option is only available to lenders who have unconditional Direct Endorsement authority and staff knowledge and expertise in reviewing and approving condominium projects. "

Once an unconditional Direct Endorsement Lender approves a Condo Complex it will be added to the FHA Approved Condo List, and other Lenders will not have to repeat the process. The new approval process will do away with having to do and Environmental Study in most cases and the "Right of First Refusal" will no longer be a reason to decline approval for a Condo Complex.The major change is that the new process will do away with “Spot Approval". A two-page questionnaire is now being replaced with a stack of paper work that will require time in approving a Condo Complex.

Overview of Fannie Mae Condo Guideline Changes:

For new construction and newly converted condo developments, 70% of the units must be sold (closed or under contract).
No more than 15% of the units can be more than 30 days delinquent in their condo dues.
Fidelity insurance will be required for condos with 20 units or more, ensuring that homeowner funds are protected.
Borrowers must obtain condo-owners insurance policy unless a master policy provides interior coverage; coverage may be not less than 20% of the personal liability, and the physical unity from the studs and in.
No more than 10% of a project can be owned by a single entity.
No more than 20% of a project can consist of non-residential space.
The homeowners association must have at least 10% of its budgeted income designated for replacements reserves and adequate funds budgeted for the insurance deductable.