FHA Commissioner Clarifies Changes to Condo Approval Process & Net Worth Requirements

Federal Housing Administration Commissioner David H. Stevensrnhas clarified and updated some of the changes made recently by FHA regarding condominiumrnapprovals, new net worth requirements for FHA-approved lenders, brokerrnparticipation in FHA programs and electronic signatures.</p

Stevens said that questions continue about temporary changesrnto the condo approval process which took effect in December 2009.  He restated the changes which:</p<ul class="unIndentedList"<liAllowed the exclusion of tenant occupied and REOrnproperties from the 50 percent owner-occupied calculation. </li<liReduced the pre-sale requirement to 30 percentrnof total units to 30 percent. </li<liIncreased the FHA concentration from 30 percentrnto 50 percent. FHA will displayrnconcentration information on the approved condo listing found on the FHArnConnection and Condominium Project Maintenance Screens.</li</ul

These changes are to remain in effect until December 31,rn2010.</p

Stevens also restated a permanent change that went intorneffect in June 2009, which eliminated project approval for site condos, arerndefined as single-family detached units encumbered by condo covenants or underrncondominium ownership.</p

He said that, because of problems with lender IT systems, arnwaiver was recently posted for the requirement of HO-6 insurance coverage whererna Master Policy does not cover the interior of individual units.</p

The first phase of the new increased net worth requirementsrnfor FHA-approved mortgagees went into effect on May 20 for new applicants.  Existing mortgagees will have until May 20,rn2011 to meet the new net worth requirements and an even more gradual increasernin net worth levels – to May 20, 2013 – have been made for small businessrnmortgagees.  FHA is using the SmallrnBusiness Administration's size standards to determine if a lender can bernclassified as a small business.  Atrnpresent that requirement for businesses in the mortgage lending industry isrnless than $7 million in annual receipts for non-depository institutions andrn$175 million in assets for depository institutions.</p

As of May 20, FHA is no longer approving loan correspondentsrnfor participation in FHA programs. rnExisting approved correspondents that satisfy the requirements to renewrntheir approval for 2010 will keep that approval through the end of 2010.  Non-FHA-approved mortgage brokers can stillrnoriginate single family FHA-insured loans when sponsored by an FHA-approvedrnmortgagee who will now be held responsible for the performance of all the loansrnthey underwrite.  Sponsored brokers mayrnoriginate, process, and fund loans as approved by their sponsors, however, onlyrnthe FHA approved sponsoring mortgagee can close those loans and submit them forrninsurance endorsement. Stevens said that additional changes regarding thernoperations of these sponsorships will be detailed in a forthcoming MortgageernLetter. </p

Stevens said that the recent announcement that electronicrnsignatures would be accepted on third-party documents originated outside of thernlenders control is just a first step.  LenderrnOriginated Documents such as the Uniform Residential Loan Application and loanrndisclosures signed by the borrower will probably be the next category ofrndocuments for which electronic signatures will be acceptable, possibly by thisrnfall.  He stressed that lenders arernexpected to employ the same level of care and due diligence for those documentsrnas for those with ink signatures including meeting the same document retentionrnrequirements.

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