FHA Updates Condo Approval Guidelines, Includes Reverse Mortgages

Today, the Federal Housing Administration (FHA) announced that it has published new guidelines intended to increase the number of condominium projects that are eligible for FHA insurance, heeding the calls of lawmakers and mortgage industry groups who have long pushed for easier condo requirements.

Effective immediately, the temporary guidance from FHA—issued via Mortgagee Letter 2015-27—will streamline the agency’s condo recertification process and expand the eligibility of acceptable “owner-occupied” units to include second homes that are not investor-owned.

The requirements of ML 2015-27 apply to all Title II programs, including the Home Equity Conversion Mortgage (HECM) program.


“It is anticipated that the issuance of these additional temporary provisions will increase the pool of condominium projects eligible for FHA approval, thus increasing affordable housing options for first-time and low to moderate income homebuyers,” FHA stated in the mortgagee letter.

Under the new streamlined condo recertification, FHA condominium approvals will expire two years from the date of placement on the list of approved condominiums. After expiration of this two-year period, further participation in the program requires recertification of the condo to ensure that the project is still in compliance with FHA’s eligibility requirements and that no conditions exist which would present an “unacceptable risk” to FHA.

Friday’s mortgagee letter also details the expansion of eligible condominium project insurance converge. Under this guideline, Homeowners’ Associations are required to maintain adequate “master” or “blanket” property insurance in an amount equal to 100% of current replacement cost of the condo, which FHA notes is exclusive of land, foundation, excavation and other items normally excluded from coverage.

The updated guidance from FHA arrives amid a series of discussions and recently introduced legislation on Capitol Hill that aims to reform the federal agency, that in part, calls for more streamlined certification requirements for condos in hopes that this would increase access to FHA financing for more potential homebuyers as well as HECM borrowers.

View Mortgagee Letter 2015-27.

Written by Jason Oliva

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  • While I can’t fault them for making changes/progress, this will only move the needle 1-2%, at best. When 94% of condos aren’t FHA approved, you need to address the bigger picture (HOAs, not homeowners, having the power). If spot approvals are not on the table, it appears legislation is the only way to go.

      • Removing the leasing restrictions would have a negative impact on the MMI fund?

        Allowing a homeowner to obtain financing in a sound condo complex where they have an ignorant or downright adversarial HOA board is bad for the MMI fund?

        No one is arguing that HUD should start approving condo complexes like they did 5+ years ago. There’s a way to do this responsibly and not exclude 94% of condos.

        You cannot allow ignorant or adversarial HOA boards to control whether a significant portion of our nations seniors have access to a HECM. That’s counter to HUD’s purpose.

      • Matt,

        What truly experienced originator has not run into an adverse or ignorant HOA board? Few in the major California major population areas are ignorant but many are adverse.

        In situations where the borrower has helped find a sympathetic board member, we have found that the board is reluctant to address the minimum financial requirements mandated for FHA approval. The vast majority of the time, this is at the heart of the problem.

        So count me as one of those who see an adverse board as exactly one of the reasons, HUD should not be approving a condo borrower.

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