The FHA has implemented a new approval process for Condominium Projects to insure mortgages on individual units. Now, reverse mortgage lenders have the authority to determine the eligibility of projects, review documentation of projects and be certified to comply with HUD’s regulations.
As before, HUD will maintain a list of Approved Condominium projects. The reverse mortgage lender must maintain all of the legal documentation connected to the approval, as well as provide the same to HUD, for verification of the reverse mortgage lender’s compliance.
There are two options for Reverse Mortgage Lenders to choose from for gaining project approval. Both require the same documentation and are applicable to condo developments that are proposed/under construction, existing construction, or conversions. The first option is the HUD Review and Approval Process (HRAP) and the second is the Direct Endorsement Lender Review and Approval Process (DELRAP), only available to reverse mortgage lenders with Direct Endorsement authority as well as the knowledge and expertise to review and approve condominium projects.
The condominium project is eligible if it has been created and exists in full compliance with applicable State laws in the given jurisdiction, and with all other applicable laws and regulations. The general requirements for approval include site condominiums, meaning single family detached dwellings that exist under a declaration of condominium covenants or condominium form of ownership. Manufactured housing condominium projects may not be processed as site condominiums and will require approval under HRAP.
Using both the HRAP and the DELRAP options, environmental reviews will not be required for approved condominium projects. If there is an existing, documented environmental condition, the reverse mortgage lender must improve the conditions before completing its review process. Such conditions include proximity to flood hazard area; existing or potential noise issues including proximity to highways, railroads, or airports; dangerous substance facilities including explosives, dumps and landfills; high ground water areas, protected wetlands, registration as a historic place; any other condition that could adversely affect the health or safety of the residents.
There are requirements that all approvals must follow regarding the designs and policies of the projects themselves. The projects should consist of two units or more. They must be covered by hazard and liability insurance and, when applicable, flood insurance. The right of first refusal is permitted unless it violates discriminatory conduct under the Fair Housing Act regulation in 24 CFR 100.
Not more than 25 percent of the property’s total floor area in a project can be used for commercial purposes and the commercial portion of the project must be of a nature that is homogenous with residential use and free of adverse conditions to the occupants of the individual condominium units. Not more than 10 percent of the units may be owned by one investor, which includes developers/builders that subsequently rent vacant and unsold units. For two and three unit condominium projects, no single entity may own more than one unit within the project; all units, common elements, and facilities within the project must be 100 percent complete; and only one unit can be conveyed to non-owner occupants.
Not more than 15 percent of the total units can be more than 30 days past due of their condominium association fee payment and at least 50 percent of the total units must be sold prior to endorsement of any mortgage on a unit. Valid presales include an executed sales agreement and evidence that a reverse mortgage lender is willing to make the loan. At least 50 percent of the units of a project must be owner-occupied or sold to owners who intend to occupy the units. For proposed, under construction or projects still in their initial marketing phase, FHA will allow a minimum owner occupancy amount equal to 50 percent of the number of presold units.
Robert Griffin specializes in reverse mortgages and has earned the accolade of No. 1 reverse mortgage broker in the Southwest for three years in a row. The owner of Griffin Financial Mortgage LLC, based in Fort Worth, his memberships include the National Association of Mortgage Brokers (NAMB), the Mortgage Bankers Association (MBA), the National Reverse Mortgage Lenders Association (NMRLA) and the Better Business Bureau (BBB). If you would like an information packet or would like to set up an appointment with one of our reverse mortgage specialists, call (866) 683-3690 or complete our online Reverse Mortgage Information form at www.reversemortgage360.com.
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