Single Family Housing Policy Handbook 4000.1 Module 2C4: FHA Condo Approval - Underwriting Condominium Loans Presenter: Dorian Humphrey As of the most recent update: August 14, 2019 The information in this document is current as of the most recent update noted on this cover page. This document does not establish or modify the policy contained in FHA’s Handbooks or Mortgagee Letters in any way. .
Disclaimer • The purpose of this presentation is to provide an overview and summary of recent changes to the Federal Housing Administration (FHA) policy. It introduces and explains official policy issued in Department of Housing and Urban Development (HUD) Handbooks and Mortgagee Letters. If you find a discrepancy between the presentation and Handbooks, Mortgagee Letters, etc., the official policies prevail. Please note, the information provided in this training is subject to change. • Please consult HUD Handbooks and Mortgagee Letters through HUDCLIPS for the most recent updates and current policy. 2
Learning Agenda Overview of Changes Part 1: Units Not Requiring Approval Part 2 : Requirements for Units in Approved Condominium Projects Part 3 : Single-Unit Approval Requirements for Eligible Properties 3
Overview of Changes 4
HUD Policy ML 09-46A & ML 11-03 ML 11-22 ML 12-18 ML 15-27 09-46B 4000.1 II.C ML 16-13 ML 16-15 ML 17-13 Condominium Project Approval 5
Single Family Housing Policy Handbook 4000.1 Overview • The structure follows the logical process flow for stakeholders. • The five major sections are: I. Doing Business with FHA II. Origination through Post-Closing/Endorsement III. Servicing and Loss Mitigation IV. Claims and Disposition V. Quality Control, Oversight, and Compliance 6
Glossary Terms Capitalized words in this module can be found in the SF Handbook glossary. 7
SF Handbook Topics II. Origination through Post-Closing/Endorsement A. Title II Insured Housing Programs Forward Mortgages 8. Programs and Products p. Condominiums i. Units Not Requiring Approval ii. Requirements for Units in Approved Condominium Projects iii. Single-Unit Approval iv. Site Condominium 8
Common Terms and Definitions Term Definition Condominium Project A project in which one-family dwelling units are attached, semi- detached, detached, or manufactured housing units, and in which owners hold an undivided interest in the Common Elements Condominium Project’s common areas and facilities including Common Elements underlying land and buildings, driveways, parking areas, elevators, outside hallways, recreation and landscaped areas, and other elements described in the condominium declaration. Condominium Unit (Unit) Real estate consisting of a one-family dwelling unit within a Condominium Project. 9
Common Terms and Definitions (cont.) Term Definition The process to determine a Condominium Project’s compliance with Condominium Project Approval FHA’s Condominium Project Approval Requirements. Approved Condominium A Condominium Project that meets FHA Condominium Project Project Approval Requirements as determined by review under DELRAP or HRAP. Condominium Association The organization, regardless of its formal legal name, that consists of homeowners within a Condominium Project for the purpose of managing the financial and common-area assets. 10
Part 1: Units Not Requiring Approval 11
Units Not Requiring Approval: HUD Real Estate Owned HUD Real Estate Owned (REO) Mortgages HUD Real Estate Owned (REO) Mortgage transactions do not require Condominium Project Approval or Single-Unit Approval. If the Unit is in a Condominium Project that has an FHA Condo ID, the Mortgagee must enter the FHA Condo ID when the case number is requested. 12
Units Not Requiring Approval FHA does not require a Condominium Project to be Approved for: HUD Real Estate Owned (REO) Mortgage Transactions Streamlines Refinances Condominiums that Meet the Site Condominium Requirements 13
Units Not Requiring Approval: Streamline Refinances Streamline Refinances Streamline Refinances do not require Condominium Project Approval or Single-Unit Approval. If the Unit is in a Condominium Project that has an FHA Condo ID, the Mortgagee must enter the FHA Condo ID when the FHA case number is requested. 14
Units Not Requiring Approval: Site Condominium Site Condominium refers to a Condominium Project that consists entirely of Single-Family detached dwellings that have no shared garages, or any other attached buildings; or A Condominium Project that: • Consists of single family detached or horizontally attached (townhouse) dwellings where the Unit consists of the dwelling and land; • Does not contain any Manufactured Housing Units; and • Is encumbered by a declaration of condominium covenants or a condominium form of ownership. 15
Units Not Requiring Approval: Site Condominium (cont.) • Site Condominiums must have insurance and maintenance costs that are the sole responsibility of the Unit owner, excluding landscaping. • Site Condominiums, as defined by FHA, meeting the insurance and maintenance standard, do not require Condominium Project Approval or Single-Unit Approval . 16
Units Not Requiring Approval: Site Condominium (cont.) Site Condominium – Required Submission Documentation Condominium Rider; Appraisal completed on Fannie Mae Form 1073/Freddie Mac Form 465, Individual Condominium Unit Appraisal Report , evidencing that all Units satisfy the site condominium definition ; Certificate of Hazard Insurance or complete copy of the insurance policy evidencing coverage of the entire dwelling; and If applicable, certificate of Flood Insurance or complete copy of the insurance policy evidencing coverage of the entire dwelling. 17
Programs and Products: Condominiums FHA will insure Mortgages on Condominium Units (Units): • In Approved Condominium Projects that have been approved under the HUD Review and Approval Process (HRAP) or Direct Endorsement Lender Review and Approval Process (DELRAP); • That are approved in accordance with the Single- Unit Approval section; or • That meet the definition and standards for a Site Condominium. 18
Part 2: Requirements for Units in Approved Projects 19
Condominium Project Approval Status The Mortgagee must verify the requirements for individual Units located in an Approved Condominium Project or Legal Phase. The Mortgagee must confirm the Condominium Project is on the list of FHA- Approved Condominium Projects at the time of case number assignment and must enter the FHA Condo ID in the Federal Housing Administration Connection (FHAC) Case Assignment screen. 20
FHA Insurance Concentration FHA Insurance Concentration refers to the number of FHA-insured Mortgages within a Condominium Project. FHA may suspend the issuance of new FHA case numbers for a Mortgage on a Unit in a Condominium Project where the number of FHA-insured Mortgages is greater than 50 percent of the total number of Units in the Condominium Project. 21
Condominium Loan Level/Single-Unit Questionnaire Form HUD-9991, FHA Condominium Loan Level/Single-Unit Approval Questionnaire refers to a set of questions designed to collect pertinent Condominium Project and Unit information for FHA insurance endorsement. You can view the questionnaire at www.HUD.gov on the Single Family Mortgages/ Model documents page. 22
Owner Occupancy Percentage Owner Occupancy Percentage refers to the percentage of Units considered owner-occupied. • The Mortgagee must determine that the Approved Condominium Project has an Owner Occupancy Percentage of at least 35 percent of the total number of Units; and • The Mortgagee must report the Owner Occupancy Percentage in FHAC, when it becomes available. 23
Owner Occupancy Percentage Calculations Numerator Denominator Includes all the following Units: Includes: • • Any Unit that is occupied by the owner as his or Multi-phased Condominium Project, the total her place of abode for any portion of the number of Units in the first declared Legal Phase calendar year and that is not rented for a majority and cumulatively on subsequent Legal Phases; of the calendar year; or • • Any Unit listed for sale that was previously Single-phased Condominium Project, all Units. occupied by the owner as his or her place of abode for any portion of the calendar year and that is not rented for a majority of the calendar year; or • Any Unit sold to an owner who intends to occupy the Unit as his or her place of abode for any portion of the calendar year and has no intent to rent the Unit for a majority of the calendar year. 24
Owner Occupancy Percentage Example Owner Units occupied as Units listed Units sold to All Units Occupancy place of abode… for sale … an owner … Concentration (10 + 2 + 3) / 20 = 75% Numerator Denominator 25
Owner Occupancy Percentage (cont.) For the sole purposes of calculating the Owner Occupancy Percentage, the following Units are included in the denominator of the calculation for a multi-phased or single-phased Condominium Project: Multi-Phased Single-Phased The total number of Units in All Units. the first declared Legal Phase and cumulatively on subsequent Legal Phases 26
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