How Does FHA Handle “Cloud” Condominiums?

condo2It appears that the “cloud” concept has spread wider than in the area of computing.  A newer type of condominium community, called a cloud condominium, has been popping up and is already approved in certain large cities such as Denver, Orlando and San Diego.

A cloud condominium is a community under a declaration of condominium but there isn’t a Home Owner’s Association (HOA) because there are no common elements in the project.  The community is governed by CC&Rs (covenants, conditions and restrictions) but does not maintain an HOA to enforce them.

The unit boundaries contain the interior and exterior of the unit and the adjacent land (front, back and side yards as applicable).  The boundaries also contain the air space above the unit to about 50 feet and the footprint of the unit.  The units can be attached (like townhomes) or free standing like “site condos”.  The units are generally smaller than a standard single-family home which is seen as decreasing the maintenance for the unit owner.

The primary purpose of these communities is to circumvent local zoning restrictions on lot size (as is the case typically with condominiums and planned communities) but without having the political structure of the HOA.

The major downside to not having an HOA is that there is no governing body within the community to enforce the CC&Rs. This means that if a unit owner is in violation of the rules or by-laws, a unit owner (or a group of unit owners) would have to take the matter to civil court to resolve it.

Because these projects do not have an HOA to enforce the CC&Rs, FHA has decided not to approve these condominium projects and, so far, it has made the decision to not lend in these projects either.  If the project consists of attached units, it is not approvable.  If the project qualifies as a “site condo”, it would not need project approval, but FHA has decided not to provide financing for these units.

Because this concept is still relatively new, we would expect that FHA would revisit this decision if the need becomes large enough or if there is more pressure from national organizations.

USDA Purchase Loans for Condo Units

imphot_3Probably the most under-utilized purchase loans for condominium units are those insured by the USDA.  Like the VA and FHA, the USDA Rural Development (RD) program is a home loan insurance that allows the financing of condominium units.

One of the most important criterion for use of this program is that the loans are only available in areas in which the USDA deems to be “rural”.  A rural area is one in which the population is 35,000 or less.  The USDA does not go by towns, it uses census tracts which can allow use of the RD program in part of a town but not the rest.  To know if the condo unit is in an eligible census tract, you can follow this link and click on the Single Family Housing link under Property Eligibility on the left of the page.

The RD program also has maximum income limits for its use and is a computation based on the number of dependents, disabled persons and persons aged 62+ that are living in the household.  The calculation also takes into account the county of the property, annual child care expenses and all income earned by adults in the home (not just the borrowers’ incomes).  You can use the link above and click Single Family Housing under Income Eligibility and use the worksheet to determine eligibility.

Unlike FHA and the VA, the USDA does not maintain its own approved condominiums list.  For a condominium unit to be eligible for RD financing, the project must be on the approved condominiums list of FHA, the VA, Fannie Mae or Freddie Mac.

Where this becomes interesting (at least to me) is when dealing with new construction projects.  FHA, the VA and Fannie/Freddie have different pre-sale requirements for new projects and their calculation.  FHA has the lowest pre-sale only requiring that 30% of the units be sold or pending sale.  Fannie/Freddie have a 50% pre-sale requirement and the VA says that 70% of the total number of units must be sold.

Therefore, for new construction in rural areas, it would make good sense to get approved with FHA to allow the use of the RD program as well.  The USDA does not have a maximum RD loan concentration limit; FHA caps its loan concentration in new projects to 50%.  Thus, after 30% of the units are sold, 50% can be financed with FHA and the rest with the RD program.  This is very important for developers to know when constructing in rural areas.

For more information about USDA’s requirements for condominium projects, you can access the Administrative Notice released by the USDA in 2007.  [The form does need some updating with regards to the pre-sale requirement.  The percentages that are listed above are accurate as of 4/17/15.]

Or you can contact Eric Boucher at

Top Photo Credit: (c) Can Stock Photo / imphot

USDA Rural Housing Program Maps


The USDA determines the eligibility of an area based upon census data and sets a maximum population limit.  Until the 2010 census data was released, it was using the 1990 and 2000 census data and had set the maximum population for the area at 25,000.

I say “area” and not “towns” because it doesn’t go by towns; it uses census tracts.  It is possible for a town or small city to have more than one census tract and that one census tract in a town may be eligible while another may not.  This is true of Waterford, CT.  Nearly the entire town is eligible except the eastern side near New London.

In 2013, the USDA announced the updated census tracts that would be eligible based upon the newest census data from the 2000 census.  In many states, including my state of Connecticut, this would have effectively reduced the eligible areas by nearly one half.  This created tremendous uproar from housing organizations and the USDA decided to postpone the implementation of the new maps.

The Agriculture Act of 2014, H.R. 2642 (The Farm Bill) modified section 520, which refers to the Rural Development loan program.  The modification included the use of the 2010 census data but increased the maximum population from 25,000 to 35,000.  This modification will ensure that the eligibility maps will stay generally the same as they have been for the past 10+ years.

condo1It was also announced that any area that was deemed a Rural area as of 9/30/2014 will remain eligible until 9/30/2014.  Currently, only the areas that transitioned from ineligible to eligible are available on the map.  The USDA noted that a preview of the complete map (including the areas that will become ineligible) will be available for preview during the summer, ahead of the 9/30/14 changes.

To view a map or to verify if a home is located in a Rural area, you can follow this link (  On the left toolbar, click on “Single Family Housing” under the heading of “Property Eligibility”.  Click Accept on the page that follows and you will be taken to the map.  You can type in the exact address or the town or the state (although the system will “bark” at you for the last two.)

You may be wondering why someone like me who helps condominiums to obtain their FHA condo approvals is concerned with the USDA Rural Development maps.  And I would say that is a great question.

The USDA RD program does allow for loans for condo units.  In order for a condo unit to be eligible for USDA financing, it has to be in a Rural area and the condominium project has to be on the FHA Approved Condominium List.  Therefore, no FHA condo approval – no USDA financing.

While most of the condominium projects with whom I work are not in Rural areas, there is a large percentage that are and having the ability to attract USDA RD loan buyers is very important.

USDA logo courtesy of the USDA

Condo Unit Financing Almost Killed Due to Reserve Contribution

gstockstudioLast week a loan officer contacted me regarding a loan he had in  process.  At the 11th hour, the lender was rejecting the conventional (Fannie Mae) loan based on the association’s contribution to the reserve account.  According to the underwriter, the association was contributing less than 10% to the reserve account; the contribution was $6,400 short by their calculations.

He asked for my input.

After reviewing a copy of the budget, I wrote down some points for my friend to bring to the attention of the underwriter.

The first of which was that the underwriter was calculating the percentage using the total amount of annual income.  This included a line item called “Rollover from 2014”.  This is not actual income to the association; it is a transfer of equity funds from the operating account consisting of accumulated funds from previous years.  Thus, it should be removed from the calculation.

In addition, there was income listed from the rental of an office space and of storage units.  These are not common charges and should also be removed from the calculation.

There is a special assessment called a “Garage Fee” listed as income and an expense of the same amount labeled as “Garage Reserves”.  The underwriter was using the income in the calculation but was not including the expense towards Garage Reserves citing that those funds “spoken for”.

I posed that special assessment funds are not to be included in the calculation unless they are charges to specific unit owners that are common every year.  And, if the income is to be included, so should the Garage Reserves contribution because it is going into a fund that will pay for the replacement/repairs of the garages, aka, common elements.

After forwarding my rebuttal to the underwriter, my friend replied that the lender had done an “about-face” and approved the condo’s budget.

This loan almost didn’t happen because the underwriter was not completely familiar with Fannie Mae’s guidelines.  How many other loans have been errantly rejected for this same reason?

Top Photo Credit: (c) Can Stock Photo / gstockstudio

Fannie Mae Reintroduces 97% Financing for Condominium Units

Last week Fannie Mae announced the reintroduction of 97% financing for single-family homes, PUD units and condominium units.  This program would compete directly with FHA 96.5% financing…or will it?

From our experience, when Fannie Mae previously offered a 97% loan product, it wasn’t widely used.  This is primarily because the monthly mortgage insurance (MI) was so high.  Fannie Mae requires 35% insurance coverage on loans greater than 95% loan-to-value.  Depending on the borrower’s credit score, this can be very expensive.

The table, below, provides figures for three different loan scenarios: Fannie Mae 97% with a 660 credit score, Fannie Mae 97% with a 720 credit score and FHA (monthly MI not impacted by credit score).

Fannie Mae 97%
720 credit
Fannie Mae 97%
660 Credit
FHA 96.5%
Purchase Price $150,000 $150,000 $150,000
Down Payment $4,500 $4,500 $5250
UFMIP* $2,533
Total Loan Amount $145,500 $145,500 $147,283
Monthly MI $133 $179 $98
*Up Front Mortgage Insurance Premium of 1.75% charged on all FHA loans; often added to the loan amount.

The other contributing factor to the monthly payment is the increase in the loan’s interest rate.  97% poses more risk as do lower credit scores and Fannie Mae requires loan-level pricing adjustments which effectively increase the borrower’s interest rate.

Often we hear that condominiums don’t want to get FHA-approved because they don’t want “those people” moving in.  Typically, this comment is in reference to low-downpayment buyers.  Essentially, Fannie Mae has just opened the door for “those people” by offering a similar product, albeit one that is more expensive.

Now, even if associations opt to not get approved with FHA, the same 3%-downpayment buyers have the ability to purchase units, but with much higher monthly payments.  By not being approved with FHA, it forces these buyers to use a more expensive loan product.

Note:  97% loans in the State of Florida must be approved through Fannie Mae’s automated underwriting system and require full project approval of the lender or Fannie Mae through PERS for existing projects; PERS approval is required for loans in new and newly-converted projects.

97% Financing – Fannie Mae Releases Selling Guide 1.27.15

AndreyPopovFannie Mae released its updated version of the Selling Guide on January 27, 2015.  The majority of the changes stem from its earlier announcement to reintroduce 97% financing for single-family homes.  It had previously capped the loan-to-value ratio at 95% for most of its programs.

According to the Selling Guide, to be eligible for 97% purchase financing, borrowers must be first time homebuyers (or haven’t owned a home in the past 3 years), purchasing a single-family dwelling (not a manufactured home) and it must be approved by its automated underwriting system Desktop Underwriter (DU).  DU will determine the borrower’s reserve requirements* (see below).  All other standard Fannie Mae loan eligibility requirements still apply.

Loans of up to 97% loan-to-value are also available for refinancing single-family, primary residence, existing Fannie Mae loans (not manufactured homes).  This LTV is only available for limited cash-out refinance transactions and must be approved by DU.

97% financing will also be allowed to finance condominium units…even in Florida.  However, in Florida, the condominium project must be approved through Fannie’s PERS system and the loan must be approved by DU.

Fannie also updated its policy regarding first-time buyer education courses to include the requirement for all My Community Mortgages with 97% LTVs.

The mortgage insurance coverage requirements are the same as they used to be when Fannie offered 97% financing: 35% coverage or 18% coverage for My Community Mortgages.  Fannie also will accept a minimum coverage of 18% but applies a loan-level pricing adjustment to the interest rate.

There are varied opinions regarding the re-introduction of 97% financing by Fannie Mae.  Many will say that it was programs like this that led to the housing collapse 8 years ago.  While others argue that the housing industry is again ready to sustain these programs now that the economy is getting back on its feet.

I think that any mortgage loan programs that assist responsible home purchasers to achieve their dream of homeownership are a good thing.

*Reserve requirement: “reserves” is the amount of assets a borrower has following the closing of a mortgage loan.  Often, it will be required that borrowers have available to them sufficient funds after the closing to be able to make several months of mortgage payments.

Top Photo Credit: (c) Can Stock Photo / Andrey Popov

FHA Announces Reduction in Monthly Mortgage Insurance

stuartmiles (14)On Friday, December 9, 2015, HUD released Mortgagee Letter 15-01 which announced a 0.50% (50 bps) reduction of the FHA monthly mortgage insurance on most forward mortgages with terms greater than 15 years.  This comes on the heels of months of lobbying by housing groups such as the National Association of RealtorsⓇ and the National Association of Mortgage Brokers.

Since 2010, FHA has been steadily increasing the monthly mortgage insurance rates to provide for the stability of the FHA Mortgage Insurance Fund.  The Fund is what allows FHA to insure lenders against losses due to foreclosure; loss of the Fund means the loss of the FHA mortgage loan program.  When foreclosure rates increased during the recession, FHA began to realize losses and determined the need to increase the premiums to raise the balance of the Fund.

More recently, housing groups began to argue that now that the Fund is flush with cash, FHA should lower the monthly mortgage insurance premiums to encourage greater usage of the FHA loan program.  The lowering of the monthly mortgage insurance premiums (MIP) makes FHA more competitive in the marketplace (when compared to the mortgage insurance rates of Fannie Mae).

The chart below illustrates the changes in the rates that will be effective on and after January 26, 2015.

Term >15 Years
Base Loan Amount LTV Previous MIP New MIP
≤ $625,500 ≤ 95.00% 130 bps 80 bps
≤ $625,500 > 95.00% 135 bps 85 bps
> $625,500 ≤ 95.00% 150 bps 100 bps
> $625,500 > 95.00% 155 bps 105 bps
Term ≤ 15 Years
≤ $625,500 ≤ 90.00% 45 bps 45 bps
≤ $625,500 > 90.00% 70 bps 70 bps
> $625,500 ≤ 90.00% 70 bps 70 bps
> $625,500 > 90.00% 95 bps 95 bps

The rate reduction does not apply to single-family forward streamline refinance transactions that closed on or before May 31, 2009 or to Section 247 mortgages on Hawaiian Homelands.

A basis point (or bp) is 1/100th of a percent.  For a loan amount of less than $625,500 and a loan to value (LTV) greater than 95%, the mortgage insurance factor is 85 bps, or .85% of the loan amount.  This factor is applied to the outstanding balance of the loan and then divided by twelve (12) to calculate the monthly mortgage insurance premium.

By comparison, the monthly mortgage insurance rates for a Fannie Mae loan of $200,000, 95.01% LTV and borrower credit score of 700 is 131 bps.  For the same loan and borrower but for 95% LTV, the mortgage insurance factor is 89 bps.

While the mortgage insurance for an FHA is for “the life of the loan”, I believe that the lowered MIP will encourage borrowers to see FHA as a viable option for purchasing and refinancing.  I placed “life of the loan” in quotes because the average life of an FHA loan is around 8 years.  Lifetime FHA MIP is a red herring in my opinion.

I did find the second half of the Mortgagee Letter interesting in that FHA is temporarily allowing the canceling of Case Numbers that were assigned to loans that have not yet closed.  This will allow lenders to cancel the Case Numbers (and therefore the loan) and obtain a new case number after 1/26/15 to allow borrowers to take advantage of the new, lower MIP rates.

In order to take advantage of the new MIP rates, lenders must first cancel the existing Case Number before it submits to acquire a new Case Number.  Cancellation requests may begin on 1/15/2015 and must be submitted no later than 11:59pm, Eastern, on February 26, 2015.

This is encouraging news for condominiums with unit values in FHA’s “sweet spot” of $100,000 to $250,000.  Until this announcement, FHA’s MIP was very expensive and made buying condominium units out of many buyers’ abilities.  The lowered MIP rates will allow more borrowers to qualify to purchase units.

Image courtesy of Stuart Miles/

Retirement Income Crisis

I’m sharing an article from the Wall Street Journal showing just how very bad the retirement income crisis currently is and it is expected to worsen. The article also contains information from the Federal Reserve.
We have to realize that Reverse Mortgages will play an INCREASING role in the financial stability of retirees. As always, I welcome your calls and questions about the Reverse Mortgage program.

My name is Lou Romney ( NMLS 14119) and I can be reached at (203) 874-3883.

Click here to read the full article.

Harvard/AARP Report: Reverse Mortgages Can Help Seniors

Reverse Mortgage News from Lou Romney :

small__2672565317Harvard University & AARP recently released the results of a new study showing the DIRE need for Baby Boomers to consider a Reverse Mortgage.  The study also shows that Boomers are THE hardest hit by the recession and declining real estate values and are entering their retirement years will less savings that ANY other generation before them !

According to the article (the link is below), we have the highest number of people going into their retirement years and still carrying a mortgage on their home.   The study also points out that in 2010,  70% of those going into their retirement years still have a mortgage & monthly payments compared to only 19% in 1992 (more than triple)!  Boomers have lost approximately 32% of their wealth since the recession began!

We have a big problem,” said Henry Cisneros, former Secretary of the Department of Housing and Urban Development.

Moving forward, it’s not a pretty picture”  says Chris Herbert, acting managing director with the Harvard Joint Center for Housing Studies.

To add to the problem, many people are outliving their retirement savings.

Many, many people CAN be helped by using a Reverse Mortgage, even if a married couple has a spouse that is not yet 62 years old.   I welcome your calls to discuss with you if a Reverse Mortgage will help you.  I can be reached at (203) 874-3883.

Follow this link to view the full Harvard/AARP study.

Please call Lou Romney at (203) 874-3883 for questions about Reverse Mortgages in Connecticut, Massachusetts or Rhode Island.

Lou Romney
NMLS  #14119
(203) 874-3883
Continental Funding  NMLS # 2723
Headquarters: 7 Cabot Place
Stoughton, MA 02072


Photo credit: Rennett Stowe via photopin cc