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:
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
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