The Federal Housing Administration has announced that it is extending through June 30 guidance that allows condominium units to be financed with FHA-insured mortgages in buildings where 30% of the units have been presold, down from its 50% requirement. The agency will also continue to allow as many as half of the units in a building to be financed with FHA mortgages, up from the 30% that is normally allowed.

NAHB strongly advocated for the higher cap on the concentration of FHA loans in buildings and is calling for its continuation.

The extension of the temporary condominium policy guidance was announced by the FHA on Jan. 5, 2011 and initially issued on Dec. 7, 2009 with Mortgagee Letter (ML) 2009-46 A.

With the exception of the temporary exemptions, the FHA’s permanent baseline guidance for condominium project eligibility — which is outlined in Mortgagee Letter 2009-46B — remains unchanged. (However, the “spot loan” approval process expiring on Feb. 1, 2011 was not extended.)

FHA Concentration Requirements

In existing condominium buildings — excluding conversions — the concentration of FHA loans can be up to 100% if baseline eligibility requirements are met and the property also meets these conditions:

• The project is 100% complete and construction has been completed for at least one year, as evidenced by issuance of the final or temporary/conditional certificate of occupancy for the last unit conveyed.
  
  
• All of the units have been sold and no entity owns more than 10% of the units in the project. In a project with fewer than 10 units, a single entity can own no more than one unit.
  
  
• The project’s budget provides for the funding of replacement reserves for capital expenditures and deferred maintenance in an account representing at least 10% of the budget.
  
  
• Control of the home owners association has been transferred to the owners.
  
  
• The owner-occupancy ratio is at least 50%.

Owner-Occupancy Requirements

At least 50% of the units in a project must be owner-occupied or sold to owners who intend to occupy the units. For projects that have been proposed, are under construction or still in their initial marketing phase, the FHA will allow a minimum owner occupancy amount equal to 50% of the number of presold units.

Vacant or real-estate-owned (REO) units occupied by tenants — including properties that are owned by a bank — can be excluded from the calculation of the required owner-occupancy percentage.

Pre-Sale Requirements

While the pre-sale requirement has been temporarily reduced to 30% through the end of June, the percentage of pre-sales in the property must be documented:

• There must be copies of the sales agreements and evidence that a mortgagee is willing to make the loan.
  
  
• There must be evidence that the units have closed and are occupied. As an alternative, the developer/builder can provide lists of all of the units already sold, under contract or closed (e.g. a spreadsheet, chart or listing used for the company’s own tracking purposes) that is accompanied by a signed certification from the developer (Attachment F of ML 2009-46 B).

At the end of the waiver period, the FHA’s condo requirements will revert back to those contained in ML 2009-46B.

NAHB continues to work with the FHA and other industry stakeholders to provide feedback on what policies are needed to ensure a healthy condominium market.

For more information, e-mail Steve Linville at NAHB, or call him at 800-368-5242 x8597.

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