HUD Issues FAQ’s for Mortgagee Letter (ML) 12-18

HUD has issued FAQ’s as a follow up to the recently issued ML 12-18 regarding temporary FHA condominium approval guidelines.  The temporary guidelines, are effective until August 31, 2014, unless otherwise extended by FHA.  Many of the temporary guidelines do not apply to existing condominium communities; however, the major changes with respect to existing condominium communities that are addressed in the FAQ’s are:

1. Exception requests for mixed-use developments that do not fall within the 25%-35% commercial space limitation;
2. Increased investor ownership percentage from 10% to 50%;
3. Change in calculation of 15% maximum delinquency from 30 days to 60 days;
4. Clarification in units that are and are not counted in delinquency and occupancy calculations; and
5. Addition of more flexibility in fidelity insurance requirements relating to management companies.

Additionally, a nation wide conference call was conducted by national HUD representatives on September 19th, whereby the temporary guidelines were discussed in more detail.  One of the clarifications resulting from that conference call was a distinction between “owner occupied” units vs. “non-owner occupied” units.  According to HUD, a unit can only be considered “owner occupied” if the owner of record on the title is residing in the unit, or unless evidence can be provided that a bona-fide family member of the title owner is living in the unit rent-free.  If the title owner is being compensated in any way by anyone other than the title owner living in the unit, the unit must be considered a rental and cannot be considered owner occupied in occupancy calculations.

According to HUD representatives, the temporary guidelines are a result of the changing market and their desire to increase opportunity for communities to become certified.  According to HUD’s research, they estimate that communities choosing to not seek FHA certification or re-certification could potentially lose approximately 60% of the loan/lending opportunities for owners and prospective buyers within the community.

If you have any questions regarding the FHA condominium guidelines, or desire to seek FHA certification or re-certification, please feel free to contact us.