I still get a call about once a week with borrowers asking when they will be able to do a reverse mortgage on their unit in a cooperative project. After all, co-op's were included in the list of acceptable properties when the Home Economic Recovery Act (HERA) passed in 2008 but the programs to include them just have not been implemented by HUD / FHA as of this date. Unfortunately, we recently received news on HUD's plans for condominiums which did not come as welcome news to me and will probably keep HUD more that busy enough to prevent them from rolling out co-ops.

Senior borrowers who currently live in condominium projects or who want to purchase in a condominium project had the ability to either purchase in a project that was already HUD approved, or the lender could do what was known as a "Spot Approval". The spot approval allowed the lender to review a few pieces of information and as long as the project met HUD's specifications and guidelines on those issues, the property was eligible. HUD has eliminated the spot approvals effective February 1, 2010 and from that time forward only borrowers located in HUD fully approved projects are eligible for FHA-insured loans...including reverse mortgages.

Now let's discuss what that really means. If a borrower has not received a Case Number prior to February 1, 2010 for a loan on a property located in a non-approved HUD condominium project, then the lender will not even be able to request the case number but rather will need to gather all the condominium documentation (CC&R's, By-Laws, Articles of Incorporation, Current Budget, Verification of Adequate Reserves, etc) including a current Homeowner's Association Certification indicating things like owner occupancy ratios, percentage of owners delinquent on HOA dues, pending litigation, etc. (think of a package roughly the size of the stack of papers you have seen everyone in Congress waving around when talking about the stimulus legislation) and then this information must be sent to HUD for approval. The timeframe quoted by HUD for approvals?

Minimum of 8 weeks from when they receive everything (and if there is anything missing or wrong - it's going to be lot longer) but when all of these packages start hitting their doorstep, the normal turn times are going to start stretching out. Lenders can also approve projects themselves but they have tremendous liability due to the fact that not only are they liable for the loans that they originate if they make errors in the project approval, but also once the project approval is input into the HUD system, all other lenders can originate out of that project as well. So the lender has just accepted the liability for these other originators as well! After several calls to lenders, we have been unable to find more than one lender who is willing to perform this function in their shop for regular forward loans and have yet to find a reverse mortgage lender who intends to approve projects. After all, what lender is willing to accept the liability for every other originator?! This will tack on a minimum of 10 weeks to the processing time for all loans located in unapproved condominium projects before a case number can even be obtained.

That is especially important since HUD always distinguishes program changes, etc. based on the date the case number was obtained. In October of 2009, HUD lowered the eligibility levels to borrowers on the reverse mortgage program by roughly 10%. All borrowers who had a case number already assigned were not affected by the change. If the condominium guidelines were also in effect, then there would have been many borrowers who would not have been able to get a case number until their project was approved and would have had their eligibility lowered, possibly lowering them to a point where they no longer received adequate funds to pay off existing mortgages.

HUD also has a designation known as a "Site Condo" which is a condominium by legal description but is a single family property by all other view points (may be on its own lot, very minimal common amenities, etc., usually done by builders to get around some local ordinance but if you drove up and looked at it, you would swear it was a single family residence). HUD does not require that a site condo has approval prior to issuing a case number but I warn originators now not to think about being tempted to obtain a case number using the site condo designation thinking they will switch it to a regular condo later. Once it has the site condo designation, it cannot be changed.

Further muddying the waters is the fact that HUD currently plans to review all the projects that are now on the approved list in January of 2011. So even if your project is currently on the HUD approved list, if HUD goes ahead with their current plans, in January of next year, it will need to be reapproved! HUD's rationale is that some of these projects may have been approved a long while back, some may have current occupancy or other issues and that their risk may have changed, that it is time to look at them again. The real question is will the magnitude of the project, once fully underway, cause HUD to alter their decision when they find that no lenders are willing to accept the risk and all projects are being sent to HUD for approval.

All homeowners in condominium projects are affected by this new procedure but the thing that worries me the most is that senior borrowers tend to wait quite a while before actually proceeding with their reverse mortgage applications. We find this to be true sometimes when they are behind on their current mortgage and even in foreclosure. Those located in condominium projects may not have the luxury of waiting if there will be a very long delay just in getting the project approved as the processing delays could be quite substantial.

Here are some resources:

• Condominium Approval Checklist
  
• FHA Mortgagee Letter 2009-46 B
• Manufactured Condominiums
  

Poll Taken from loan originators about the new condo requirements

Leave your comments below!

By: Michael Branson (CEO All Reverse Mortgage Company)

If you need assistance with getting your condominium approved work the proven experts at All Reverse Mortgage Company. Give us a call today Toll Free (888) 801-2762 Ext 1 or complete our online request