FHA ........ Major Condo Approval Change!!!

Real Estate Mortgage Broker with George Souto NMLS #65149 FHA, CHFA, VA Mortgages Connecticut NMLS #65149

Well so much for my blog yesterday about not having seen any change to the Underwriting Guidelines lately. This morning my office made me aware of FHA's latest Mortgagee Letter 2009-19 that was issued on June 12th.  In this latest Mortgagee Letter FHA is announcing MAJOR change to their Condo Approval Process.

"In accordance with the passage of the Housing and Economic Recovery Act (HERA) of 2008, the Federal Housing Administration (FHA) is implementing a new approval process for Condominium Projects to insure mortgages on individual units under Section 203(b) of the National Housing Act. FHA will now allow lenders to determine project eligibility, review project documentation, and certify to compliance of Section 203(b) of the NHA and 24 CFR 203 of HUD’s regulations. HUD will continue to maintain a list of Approved Condominium Projects. The requirements of this Mortgagee Letter are effective for all case numbers assigned on or after October 1, 2009 except as noted."

This is a MAJOR change to the present Condo Approval Procedure, and while it reduces the documentation and requirements for Full Condo Approval, it will place a lot more work and responsibility on Lenders. The new approval process states "The lender will have two condominium project approval processing options. The applicable documentation requirements will be the same for each option:

  1. HUD Review and Approval Process (HRAP).
  2. Direct Endorsement Lender Review and Approval Process (DELRAP), outlined in this Mortgagee Letter. This option is only available to lenders who have unconditional Direct Endorsement authority and staff with knowledge and expertise in reviewing and approving condominium projects"

Once an unconditional Direct Endorsement Lender approves a Condo Complex it will be added to the FHA Approved Condo List, and other Lenders will not have to repeat the process. The new approval process will do away with the need to do an Environmental Study in most cases, and the "Right of First Refusal" will no longer be a reason for declining approval of a Condo Complex.

The other MAJOR, MAJOR change, and this will present a huge problem in my opinion, is that this new approval process will do away with the present "Spot Approval"

"The Spot Loan Approval process as defined in Mortgage Letter 1996-41 is eliminated with issuance of this guidance. The DELRAP and HRAP processes have been streamlined to allow for uncomplicated condominium project approvals eliminating the need to approve units on a “spot loan” basis"

So now it will become an all or nothing, and a simple two page questionnaire will be replaced by a stack of paper work that is over an inch thick (I saw one the the application packets today).  This new approval process will also add significant time to the approving a Condo Complex, as oppose to the quick "Spot Approval" that is now available.  Granted that the new approval process once done will not have to be done again, as oppose to the "Spot Approval" which had to be done ever time a loan was done on a Condo in a Condo Complex which was not on the FHA Approved Condo List, but the amount of time and work far out weighs the benefit in my opinion.

Hopefully FHA will re-consider the removal of the now "Spot Approval" option before October 1st and let it continue.



Info about the author:

George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com


Re-Bloggged 2 times:

Re-Blogged By Re-Blogged At
  1. Maureen McCabe 06/17/2009 09:38 AM
  2. Jason Kardos 06/18/2009 12:34 PM
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Comments 66 New Comment

Anonymous #63

I own a consulting firm that can help you obtain project approvals for your condominiums. FHA is the best way to get financing for your condominiums even with the rule changes effective October 1st. I have over 15 years national experience in condominium project approvals and have submitted hundreds of projects through FHA, Fannie Mae, and Freddie Mac. I would love to hear from you if you need assistance. 

September 03, 2009 02:12 PM
Anonymous #64

Steve, how can I reach you? I am a property manager and have several clients that would be interested in your services.

September 08, 2009 07:10 PM
Anonymous #65

    I have heard that some reverse mortgages lenders are nervous. It seems that some brokers had obtained spot approvals from condo associations saying that the condo assoc. had reserves when in fact they didn't. Proof of having reserves (roof replacement etc.) were needed for the spot approvals. Now, lenders are afraid that FHA will not pay off their reverse mortgage that they are holding for an amount that is less then they can sell the property at foreclosure and that FHA will not pay the lender off if they feel there was fraud in the spot approval. One lender supposedly said that they would sue the people or association who provided the spot affidavit stating that there were reserves when in fact there were not. Anyone heard anyting on this?



October 05, 2009 12:48 PM
Anonymous #66
Steve Stenger

As I mentioned in an earlier post on September 3. I have a consulting company, Condo Approval Professionals LLC, that can help those that need their condos approved through FHA as well as the other agencies. I have over 15 years of national project approval experience. Visit us on the web at www.condo-approval.com to find out more about my company and the services we provide. I can be reached at steve@condo-approval.com or by phone at (847)293-2962

Steve Stenger


Condo Approval Professionals LLC


October 20, 2009 07:38 PM
Anonymous #67

I've made several attempts to buy a condo, and my realtor doesn't seem to know the pitfalls, until I went on line reading about all of the legal rammifications connected with this.  It hit me like a brick, just two days before escrow would close.  I've lost my condo, the tax rebate, and like many others, we have been royally screwed...  I'm an American Citizen, native of California, and just need a place to live.  I'm tired of living out of a bedroom for almost 3 years now.  I completed a 2 1/2 year divorce.  I bought furniture, appliances, that some things I could not return, and they are in limbo, waiting for a delivery address, that I don't have.  How much longer, must I wait?????

June 09, 2010 03:24 AM

George Souto

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