Mortgagee Letter 2011-22 dated 6/30/2011 clarifies, expands, consolidates, and updates existing condominium approval guidance while also replacing Mortgagee Letters 2009-46b, 2009-46a and 2011-03. Included with the new Mortgagee Letter are an attached Condominium Approval Implementation Schedule and 95 page Condominium Project Approval & Processing Guide. The revisions listed in this newest Mortgagee Letter are effective starting 08/31/2011.
Because of the length of content included within the Mortgagee Letter and attachments, this article is presented in multiple parts.
Overview and Summary of Changes
The Mortgagee Letter (ML) and Guide define the requirements for obtaining, recertifying and maintaining condominium project approval. The requirements, as defined, are applicable to forward mortgages and those originated under the Home Equity Conversion Mortgage (HECM) insurance program.
The HRAP and DELRAP project review and approval options previously explained in Mortgagee Letter 2009-46b remain. However, a number of changes are announced in the new Guide.
HRAP & DELRAP Changes
New Checklists are provided in appendices F1-F3 of the Guide.
Project review requests must be submitted by Builder; Developer; Homeowner Association (HOA); Management Company (MC); Project Consultant or Attorney acting as an agent for the developer/builder, HOA or MC. Applications received directly from borrowers, homeowners, sellers or real estate agents generally will not be processed and will be returned to the submitter, but HUD may determine, on a case by case basis, that alternative sources of submission are appropriate.
DELRAP Changes
DELRAP Mortgagees will be required to register all condominium reviewers in FHA Connection (FHAC) using the Condominium Registry screen as of an effective date to be announced.
DELRAP Mortgagees are required to maintain copies of all project legal documents, contracts, conveyances, plats, plans, insurance coverage, presale and owner occupancy conditions and other associated documentation in connection with their review and approval or denial of the condominium project submission for three years after the last action taken for project review whether for approval, denial, annexation or recertification.
DELRAP reviewers must provide FHA with the FHA Connection PDF document upload of the condominium project documents within 5 business days of the disposition. After seven days from the initial upload date, any additional documents that must be submitted must be sent to the HOC for appending to original submission.
DELRAP Mortgagees must implement a quality control plan that includes review of condominium projects to include procedures for approvals and denials in accordance with the requirements of Chapter 7 of HUD Handbook 4060.1. Failure to comply with specific Quality Control requirements may result in administrative action and / or the imposition of Civil Money Penalties by the Mortgagee Review Board (MRB).
If a participating DELRAP mortgagee issues a condominium project denial, any reconsideration documentation for the first twelve months from the date of the denial must be submitted to the jurisdictional HOC for review and disposition.
A minimum of the first five (5) approvals and / or denials will be selected for review. After review of the first five (5) approvals and /or denials, additional project approvals or denials will be selected for post review (1 of every 5). Serious non-compliance and / or patterns of non-compliance, e.g. missing documentation, improper approval will result in selection of additional project approvals or denials for review and / or administrative action.
HRAP Changes
HUD will accept hard copy paper submission or CD with a hard copy cover letter. CD is now the preferred method for package delivery. Only one project can de delivered per CD.
Ineligible Project Clarifications
Projects with mandatory rental pooling agreements that require unit owners to either rent their units or give a management firm control over the occupancy of the units are not eligible;
Projects that restrict the owner’s ability to occupy the unit are ineligible;
Projects located in Coastal Barriers are ineligible;
Live / work units where more than 25 percent of the total project or unit square footage is used for nonresidential purposes are not eligible;
Assisted living facilities are generally not eligible if the features of the project are unique to assisted living facilities; including but not limited to required purchase of additional services by the unit owners, commercial interest, ownership or retention of commercial entities that provide additional services;
Projects where the developed retains ownership of common areas or amenities after transfer of control has been made to HOA are ineligible.
Project Type Clarifications
The Mortgagee Letter expands on the explanations defining the various types of conversions to include added details explaining
Converted, Non-Gut Rehabilitation Projects which are conversions which may include new paint, carpet, cabinetry, fixtures, doors and windows among other things.
Eligible only under HRAP processing option
Conversion must be complete
At least 51% of total units must have been conveyed or be under bona fide contract for conveyance to owner-occupants. A developer may own up to 49 percent of the total units at the time of project approval. The units may be vacant or tenant occupied
No investor / single entity, aside from the developer, may own more than ten (10) percent of the total number of units
Review of the financial documents must determine that the budget and operating results is sufficient and includes allocations / line items to ensure sufficient funds are available to maintain and preserve all amenities and features unique to the condominium project; and provides for the funding of replacement reserves for capital expenditures and deferred maintenance in an account representing at least ten (10) percent of the budget; and provides adequate funding for insurance coverage and deductibles; and funds to cover the total cost of any items identified in the reserve study or engineer’s report that need to be replaced within five years from the date of the study must be deposited in the HOA’s reserve account.
Developer must provide a detailed description of the work proposed or already completed in order for the project units to be ready for sale and comprehensive sale and marketing strategy and a transition strategy for any unit(s) currently rented with the exception of those rentals required by state or local law, including rent controlled units.
For cooperative to condominium conversions the underlying “blanket” mortgage must have been paid in full and all share interests must have been converted to deeds.
Refer to page 17 of the Guide for explanation of phasing.
Required documentation: A current reserve study, engineers report must comment favorably on the structural integrity of the project and the remaining useful life of the major project components, current annual budget, current balance sheet dated within 90 days, actual income and expense statement. Additional documentation may be deemed necessary by HUD.
Converted, Gut Rehabilitation Projects which are conversions which may include Renovation of the property down to the shell of the structure, replacement/installation of HVAC systems, replacement/installation of electrical components and/or any structural modification.
Eligible only under HRAP processing option
Conversion must be complete as evidenced by an engineering or architectural inspection (dated within 12 months of work / repair completion)
Review of the financial documents must determine that the budget and operating results is sufficient and Includes allocations/line items to ensure sufficient funds are available to maintain and preserve all amenities and features unique to the condominium project; and provides for the funding of replacement reserves for capital expenditures and deferred maintenance in an account representing at least 10% of the budget; and provides adequate funding for insurance coverage and deductibles; and funds to cover the total cost of any items identified in the reserve study or engineer’s report that need to be replaced within five years from the date of the study must be deposited in the HOA’s reserve account.
Developer must provide a detailed description of the work proposed or already completed in order for the project units to be ready for sale and comprehensive sale and marketing strategy
For cooperative to condominium conversions the underlying “blanket” mortgage must have been paid in full and all share interests must have been converted to deeds.
Refer to page 17 of the Guide for explanation of phasing.
Required documentation: A current reserve study, engineers report must comment favorably on the structural integrity of the project and the remaining useful life of the major project components, current annual budget, balance sheet dated within 90 days, actual income and expense statement. Additional documentation may be deemed necessary by HUD.
Part 2 will follow and will address Environmental Review Requirements, Unique Project Types, and Leaseholds.
The real estate market has not been very welcoming to many home owners who are struggling these days. With so many bank owned properties being dumped onto the market, the prices of once over valued properties, have plummeted. Many of these “underwater” homeowners become frustrated and wonder how they can continue to pay their mortgage. They often do not and simply walk away from their homes, succumbing to foreclosure, if the bank will not renegotiate their amount owed on their mortgage. This is really not a good choice as this will always result in the worst kind of credit problems.
For the past several years, the Santa Clara & Alameda County real estate markets have been in decline. To be sure, there have been some months that have showed gains, but overall a decidedly downward direction. We’ve all heard the reasons; jobs, tightening credit, lack of buyers…However, a looming solution may just be on the horizon! Some 6 million folks went through a short sale or foreclosure in 2008 & 2009 and have been patiently waiting for the minimum 3 year waiting period to be up. These former homeowners, specifically those folks who lost their home in 2008 and 2009, who wish to purchase a new home, have to consider different options. There are some very good financing options available to these recovering homeowners that should be explored, even some 100% financing options. To be sure, a short sale survivor needs to be informed and take action in advance of re-entering the housing market.
The Federal Housing Administration endorsed $10.5 billion in multifamily rental housing loans during its fiscal 2011, a new record with still another month and a half to go.
The FHA fiscal year ends in October. So far, it endorsed nearly 1,100 multifamily loans, seven times the amount three years ago. For only the second time, loan activity surpassed $10 billion.
