FHA Makes Temporary Adjustments to Condo Standards in Response to Market Conditions
On September 13, the Federal Housing Administration (FHA) released a revision of its condominium project approval guidelines, which are contained in Mortgage Letter 2012-18 and will expire on August 31, 2014. The changes address the following issues:
- No more than 15 percent of units may be more than 60 days delinquent, which is up from 30 days.
- All new and established condo projects with more than 20 units must obtain and maintain employee dishonesty insurance coverage. The policy must cover all officers, directors, and employees of the association, as well as all other persons handling funds administered by the association. The coverage must amount to no less than three months assessments on all units plus reserve funds unless state law mandates a maximum dollar amount of required coverage. If the condo engages in the services of a management company, the company must have obtained its own fidelity coverage that meets FHA association coverage requirements or the association’s policy names the management company as an insured, or the association’s policy includes and endorsement stating that management company employees subject to the direction and control of the association are covered by the policy.
- The individual submitting a condo project for approval should certify that to the best of their knowledge, the information in the approval request is accurate, that they have reviewed the project application and upon the advice given by an attorney it meets all state and local laws, that they have reviewed the application and it meets all current FHA condominium approval requirements, and they have no knowledge of circumstances or conditions (construction defects, operational issues, etc). that may have an adverse impact in the condo project
- Finally, the FHA will consider condominium projects with commercial space of between 25 and 35 percent for projects through the HRAP process only. They will consider on a case-by-case basis exceptions for mixed use condos with commercial space of up to 50 percent, with substantial documentation.
Click here to review the revisions in full.