Although it is stated that HUD expects to “increase the pool of condominium projects eligible for FHA approval” by implementing these changes, it’s difficult to comprehend how these changes will contribute to any major increase in loan production involving condo units.
The three policy changes announced include the following:
- A revised calculation of the FHA required owner-occupancy percentage
- Expansion of eligible condominium project insurance coverage
- Revised requirements for obtaining condo project re-certification.
The “revised” owner-occupancy percentage was modified, or tweaked, to allow units that are not “investor owned” to be considered as occupied for the purpose of Condominium Project approval. Examples of what constitutes an investor-owned unit are provided in the Mortgagee Letter. However, the overall owner-occupancy threshold of 50% is not being changed.
HUD is also “expanding” the types of eligible insurance coverage required to maintain adequate “master coverage” in an amount equal to 100% of the current replacement cost of the condominium project exclusive of land, foundation, excavation & other items normally excluded from coverage.
These additional insurance types include Coinsurance policies, pooled insurance policies and state-run plans. It is important to note, however, that a unit owner will continue to be unable to satisfy HUD’s minimum insurance coverage by obtaining “gap insurance” coverage.
This Mortgagee Letter outlines a more streamlined approach to processing FHA condo project re-certifications and provides a new Recertification Checklist to assist in processing such applications.
What is very disappointing, however, is that HUD will continue their policy of having FHA condominium project approvals expire in only two years from the date of placement on the approved list. It was anticipated that HUD would extend their condo project approval time frame beyond two years in order to reduce the number of projects that need such re-certifications.
Outlined below is the link for the Mortgagee Letter & link to the new Recertification Checklist.
Maybe HUD will be making more condo policy & procedural changes in the coming months? This has been a topic of much conversation recently in the industry & various Congressional staff.