Condo Residents Urge FHA to Ease Rules on Reverse Mortgages

It has been nearly one month to the date since the Federal Housing Administration proposed new rules that could make it easier for condo-dwelling seniors to obtain reverse mortgages. With the public comment period underway, various stakeholders are voicing their support for the pending proposals.

The 43-page proposed rule introduced late September includes a provision that would allow individual condo units to become eligible for FHA financing even if the entire complex is not agency certified—a move that is reminiscent of the agency’s former “spot approvals” process.

FHA has been under pressure over the years from mortgage industry and homeownership advocacy groups to update its guidelines on condominium financing, particularly in regards to making the certification process less burdensome for condo projects seeking eligibility to provide FHA loans to their inhabitants.

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Condos, which are often popular housing options for many younger and first-time homebuyers, are also viable living arrangements for older homeowners who seek a more active and urban lifestyle, or a more maintenance-free quality of life. Current blanket certification policies, however, have restricted not only many would-be buyers from purchasing condo units, but have also hindered the ability of seniors to continue living in these housing developments.

Since condos are subject to an all-or-none approval process, where the entire complex must be certified for FHA financing as opposed to a unit-by-unit basis, seniors have been largely shut out from being able to tap one of the greatest assets they possess: housing wealth.

Such is the case for Pamela Ward, 63, who bought a condo in Venice, Fla., two years ago. Her plan was to eventually get a reverse mortgage to help pay for the costs of her everyday needs, including utilities, food and also HOA fees—expenses that, she says, her Social Security income will not be able to cover by itself.

“Therefore, I planned to use the equity that I have in this home to augment that income and be able to live here for many years to come,” Ward stated in a submitted comment on FHA’s condo proposals published at Regulations.gov.

To Ward’s dismay, her condo complex, Farmington Vistas, is not certified to provide FHA financing. By her account, there is just one 24-unit condo complex that currently has such approval at this time.

In Venice, where 57% of residents are age 65 or older, according to U.S. Census Bureau data, there are likely others in similar situations as Ward; seniors living condos who could potentially benefit from using a reverse mortgage to supplement their retirement spending, but are prevented from doing so due to their condo’s lack of FHA financing.

“The ability to apply for a reverse mortgage based on individual viability rather than blanket rules to a whole complex is much more democratic and would logically help the economy as a whole [as] more people will have cash flow to spend on not only needs but some wants as well,” Ward stated.

In some cases, the hassle of gaining eligibility for FHA financing has deterred homeowners associations (HOAs) from even considering applying for certification.

When Roselee Maddaloni, 68, a Catholic school principal in the Archdiocese of Philadelphia, wanted to avail herself of a reverse mortgage to prepare for retirement, it wasn’t until she was far along in the application process that she found out her condo was not approved by the Department of Housing and Urban Development (HUD) to permit FHA financing.

“I called the association and they assured me that it was,” Maddaloni stated in her comment to FHA. “Later, I learned that two months prior to completion of my reverse mortgage, the Condo Association discontinued the HUD certification. They never informed the homeowners, nor have they done so since.

Maddaloni’s HOA told her that renewal of HUD certification was “too expensive and not in their budget.” She even volunteered to pay for the complex’s efforts to gain FHA approval, but to no avail.

“I believe this is unfair that seniors living in condominiums cannot avail themselves of the opportunities provided to everyone else because of the unilateral decisions of condo associations,” Maddaloni wrote. “Naturally, this derailed my plans for the future.”

Anyone interested in commenting on FHA’s proposed rule, including the agency’s proposal to approve individual condo units for FHA financing, has until November 28, 2016 to submit comments at Regulations.gov here.

Written by Jason Oliva

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  • IMH view, condos should only be approved for a project as a whole. Here we have a woman claiming that going to FHA directly is more democratic when it is her homeowners’ association that will not move forward. Perhaps the woman is trying to avoid her share of unrecorded recourse liabilities by getting a HECM. It is not FHA that elected her HOA representatives; it was she and her fellow condo owners.

    To protect the MMI Fund it is necessary to avoid preexisting HOA related deferred maintenance costs as well as improperly handled lawsuits. The problem of inadequate HOA reserves should be a prohibitive cause for denying approval by HUD; that prohibition must stay in place; otherwise, any senior could get out of known but unrecorded HOA liabilities by simple getting a HECM.

    There is no need for HUD change. If homeowners want FHA insured mortgages, their HOA’s need to have adequate reserves as defined by HUD. If the HOA does not decide to move forward, then it is the homeowners who have decided not to meet HUD demands. After all, a HOA is nothing more than an association of homeowners.

    Let homeowner democracy rule!! If a condo HOA cannot move forward then there should be absolutely no HUD/FHA approval for any unit represented by the HOA in accordance with CC&Rs.

    There are a lot of sad coop owner stories as well. Sympathy has its place but it is no reason to overlook MMI Fund responsibilities.

    • My condo section and i will explain—each of 5 sections in my condominium are run by a president and management company, The HOA only takes care of the property, like the pool, club house, surrounding grounds, each section pays into the Hoa fund. I am told the only thing left to apply for an application is incorporation from the builder, which has to be gotten from the state. It has been sent to the state and we are waiting for the info for more than 2 months. How can be get the state to move on sending us the info. My condo complex is beautiful and we have 42 units in our section and when one is put on the market it is sold quickly. I am anxious to get a RM because i am 78–79 in December and i would like to be able to enjoy the years i have remaining, without pennypinching everyday. I have been living on my SS, but it is getting harder, as prices keep rising. I am a perfect candidate with a credit score better than most.

      • Then you have CC&Rs and as a result need approval of the HOA.

        The HOA must explain to you what NY state hangups they are encountering on incorporating. You can also ask a business attorney for his/her opinion. NMLS licensees should not be incorporating HOAs they are trying to get approved.

      • What are CC&R’S—all we need is the builders inc. from the state–3 months and still cannot get the papers from the state. I am wondering if this is still a needed item from HUD. Condo was was builr in 1988.

  • I live in a section of a condominium and we have started quite sometime ago to get all the papers needed for approval. We are waiting for the last info needed to send for approval. We have been waiting for over 2 months for the last info from NYS, so we can proceed for approval. How do you get the State to move?????

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