On Jun 12, 2009, the Federal Housing Administration ("FHA") announced a new, stricter approval process for condominiums to be eligible for FHA financing. Common interest communities, and their managing agents and attorneys, must be aware of the mortgage market and how tightened underwriting standards will affect association operations and property values. Recent studies show that the FHA alone currently insures approximately 23% of all new mortgage transactions. It is believed that the FHA, Fannie Mae, Freddie Mac, the Veterans Administration and the Department of Housing and Urban Development account for 90% of the mortgage market. Under the proposed regulations, all condominiums with an FHA condo certification previously approved for FHA financing would have to be reapproved or FHA financing would not be available.
Some of the proposed regulations are as follows:
- Projects consisting of three (3) or fewer units will no more than one unit encumbered with FHA insurance. Projects consisting of four or more units will have no more than 30% of the total units encumbered with FHA insurance.
- The new regulations require that at least 50% of the total units must be sold prior to endorsement of any mortgage in the project.
- Transfer of control of the association shall pass to the owners of units no later than: (i) 120 days after the due date 75% of the units are conveyed to unit purchasers; or (ii) one year after completion of the project evidenced by the first conveyance to a unit purchaser.
- A final certificate of occupancy is required as a precondition to project approval. Temporary certificates of occupancy are not permitted.
- No more than 25% of the property’s total floor area in a project can be used for commercial purposes.
- No more than 15% of the total units can be in arrears (more than 30 days past due) of their HOA fees, monthly maintenance fees, special assessments, and other condo fees.
- A current reserve study must be no more than 12 months old.
- Existing condominium project approvals will expire two years from the date placed on the list of approved condominiums.
These lending guidelines were to be effective October 1, 2009. The effective date has been twice postponed however. The current effective date is December 7, 2009.