Tag Archives: mortgagee letter 12-18

FHA Extends Temporary Condominium Approval Guidelines

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pixelbrat_300pxAs expected, FHA extended the effective date of Mortgagee Letter 12-18 until August 31, 2016; the provisions in ML12-18 were due to expire on August 31, 2014.

At 5:21AM on August 30, I received an email notification that FHA released Mortgagee Letter 14-17. The sole purpose of the Letter was to extend the effective date of the ML12-18. No other changes were announced in the Letter.

Mortgagee Letter 12-18 announced a temporary easing of certain criteria regarding condominium project approvals. The modified guidelines have made it easier for many condominiums to obtain an FHA condo approval. Extending effective dates of these criteria is great news for condominiums looking to obtain a certification with FHA.

Why wouldn’t they extend the dates further or make the guidelines permanent?

That’s a great question imaginary person!

FHA is currently working on a comprehensive Handbook that will encompass all aspects of working with FHA from lender approval to loan underwriting to condominium project approvals to submission of loan packages for insurance. It will be a soup to nuts Handbook, so to speak.

FHA expects to have the Handbook completed sometime during 2015. At which time, I believe that the temporary guidance for condo project approvals as stated in ML12-18 will become permanent. Therefore, there is no need to extend the provisions in ML12-18 beyond the two-year period.

FHA has been consistently releasing draft sections of the Handbook for discussion. I expect that the condo project approval section should be released soon (before the end of the year.)

Related: Critical FHA Condo Approval Requirements to Sunset 8/31/14

Image Credit: (c) Can Stock Photo / pixelbrat

Critical FHA Condo Approval Requirements to Sunset 8/31/14

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Critical FHA Condo Approval Requirements to Sunset 8/31/14

eyemark_2_300pxUnless FHA releases a new Mortgagee Letter in the next few days, the temporary guidelines for condominium approvals created in Mortgagee Letter 12-18 will expire on August 31, 2014.

The highlights of the 12-page document include:

  • Clarification of Under Construction,
  • Approval Guidance for New Conversions,
  • Requirements for Non-Residential/Commercial Space,
  • Insurance requirements for Crime Policies,
  • Modification of criteria for delinquency rate of unit owners,
  • Updated Pre-Sale Requirements for new construction,
  • Updated Owner-Occupancy Requirements for new construction,
  • Investor ownership, and
  • Modification of the Project Certification form (Appendix A)

For ordinary, existing condominium projects, the most important of these are the sections regarding investor ownership and unit owner delinquency rate.

Investor ownership.  The temporary guidance allowed one entity to own up to 50% of the units in a condominium.  Previously, one entity could not own more than 10% of the units.  It also allowed for unoccupied and unsold units to not be considered as investor-owned units.

These changes made obtaining an FHA approval easier for new construction and conversions where the developer still owned a large percentage of units.

Unit Owner Delinquency Rate is now based on the 60-days instead of the 30-days.  Initially, FHA had said no more than 15% of the unit owners could be 30 days or more delinquent with exceptions.  This was changed to no more than 15% could be 60 days or more delinquent with no exceptions.

Many associations with whom we have worked were able to get approved solely based on this change.

HUD is expected to extend the effective date of this Mortgagee Letter.  When I attended the HUD Roundtable session in Washington DC in March, HUD gave no indication that it had any intention of allowing this temporary guidance to come to an end.

…But talk about waiting to the last minute!

(c) Can Stock Photo / EyeMark