Updated: FHA Eases Condo Rules, Expanding Reverse Mortgage Market

Through a new rule announced Wednesday, the Federal Housing Administration (FHA) is making it easier for condo owners to get reverse mortgages and other FHA financing.

The FHA published a final regulation and policy implementation guidance this week establishing a new process for condominium approvals, effective October 15, which will expand FHA financing for qualified first time homebuyers as well as seniors looking to age in place, the Department of Housing and Urban Development said in a press memo.

In a stated Trump Administration effort to “reduce regulatory barriers restricting affordable homeownership,” the new rule introduces a new single-unit approval procedure that eases the ability for individual condominium units to become eligible for FHA-insured financing. It also extends the recertification requirement for approved condominium projects from two years to three.


The rule will also allow more mixed-use projects to be eligible for FHA insurance, the department said in a press release. HUD Secretary Ben Carson touted the rule’s ability to assist both first-time homebuyers, as well as seniors aiming to age in place.

“Condominiums have increasingly become a source of affordable, sustainable homeownership for many families and it’s critical that FHA be there to help them,” said Carson in a press release announcing the new rule. “Today, we take an important step to open more doors to homeownership for younger, first-time American buyers as well as seniors hoping to age-in-place.”

Reverse mortgage implications

This rule is being implemented partially in response to the demands of the housing market, and is aimed at including reverse mortgages for seniors who wish to age in place in a condominium unit, according to Acting HUD Deputy Secretary and FHA Commissioner Brian D. Montgomery.

“For seniors, part of our mission is to provide affordable options to age in place. Condominiums can make a lot of sense for many seniors [for reasons of affordability],” Montgomery said on a conference call with reporters. “Our single unit review now also includes reverse mortgages, known as Home Equity Conversion Mortgages (HECMs), designed to help seniors age in place.”

In a question and answer session with officials from HUD and FHA, the impact on the reverse mortgage market was additionally clarified in response to RMD.

“Due to the availability for HECM loans to be applied to the single unit approvals, I think that by introducing the single unit approval process, that’s going to provide an opportunity for all borrowers to utilize FHA financing to either acquire new homes, or if they are seniors, to age in place,” said Gisele Roget, FHA deputy assistant secretary of single family housing.

She also clarified that the previous rules governing condo approvals shut out a lot of senior condo owners from obtaining a HECM in the past, and this new rule will help to address that.

“We recognize that many seniors live in condominium projects that were unable or unwilling to go through the process of FHA’s project approval,” Roget said. “And so, by allowing HECM borrowers to utilize the single unit approval for HECMs, they will be able to age in place in condominium projects that do not have the overall FHA project approval.”

The ranges were also extensively deliberated internally by FHA, which can include HECM for Purchase transactions, added Commissioner Montgomery.

“Whether it’s HECM for Purchase or just purchasing a condo for a first-time homebuyer, we’ve spent a considerable amount of time studying the ranges,” Montgomery said. “We wanted to avoid some of the pitfalls of the housing crisis, and this is a message that we heard loud and clear. We’ve worked closely with groups out there, and obviously with our own Office of Policy Development and Research.”

Industry response

Industry participants applauded HUD’s expansion of the rules.

“Condos have become an affordable housing option for seniors, especially in high home value areas, so the FHA’s new policy has the potential to help a large group of older Americans age in place,” said Jesse Allen, EVP of alternative distribution at American Advisors Group (AAG) in an email to RMD.

Others acknowledged that this decision on condominiums has been long-requested.

“After years of working with HUD on this issue, it’s great to see them lift their ban on spot approvals,” said Scott Norman, VP field retail and director of government relations at Finance of America Reverse (FAR). “There is a great deal of demand in the condominium market, so this is very welcome news. While we are still going over the details, this announcement could help qualify tens of thousands of homeowners for reverse mortgages over the next few years and may allow more seniors the opportunity to age in place. We applaud HUD and Commissioner Montgomery for their hard work on this document.”

Some lenders also see this new rule as overcoming cumbersome approval rules which govern full condominium complexes, since homeowners associations (HOAs) often never bothered with applying in the first place.

“Most HOA’s that are not currently FHA approved have little interest in applying for approval. It seems most management companies aren’t open to it or they know there are issues they have run into in the past that prohibit FHA approval,” said Michael Mazursky, president of iReverse Home Loans. “This should definitely help many Seniors qualify for a HECM that in the past couldn’t proceed. The proprietary product has been able to fill the void, but this is a new outlet that should be extremely beneficial to Seniors.”

The industry’s trade association also lauded the new rules’ announcement.

“While NRMLA is working through the details of the new condo rules with our Board, outside counsel and HUD Issues Committee Chairperson, we certainly appreciate the Department’s release of these new rules,” said Steve Irwin, SVP of the National Reverse Mortgage Lenders Association (NRMLA) in an email to RMD. “Many senior condo owners have been frustrated by their inability to get a reverse mortgage on their condo, and this new rule should enable eligible senior condo owners to now take advantage of a reverse mortgage so they might continue to age in place.”

FHA estimated this new policy will notably increase the amount of condominium projects that can now gain FHA approval. 84 percent of FHA-insured condominium buyers have never owned a home before, according to agency data. Only 6.5 percent of the more than 150,000 condominium projects in the United States are approved to participate in FHA’s mortgage insurance programs.

“As a result of FHA’s new policy, it is estimated that 20,000 to 60,000 condominium units could become eligible for FHA-insured financing annually,” the press release said.

Read the final rule in the Federal Register.

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  • I read this release as well as reading the final rule, which is not the easiest document to follow, I may ad. However, my take after reading it, is that the new ruling has many characteristics of the old “Spot Loan Approval” program.

    If that is the case, this is great news and will enhance business withing our industry.

    I would like to see what Jim Veale thinks of the new rule. Jim, if you are reading my comment, please take a look at the rule, which is in the last sentence of the article. Sure would love to get your take on the new ruling.


    John A. Smaldone

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  • I often read that “proprietary” reverses can fill the gap in the condo market created by the lack of FHA approvals. I’ve not seen a “proprietary” program that will go below $500K in property value which, unless you are in CA or another high-value area, leaves most condos out of the equation.

    The return of FHA spot approvals will, indeed, provide a huge boost to this reverse market segment by opening up lower-value properties for HECM financing.

    • Jim, our property values are between $105,000 and 180,000 and we have 3 reverse mortgages in our community. The 3rd one I didn’t mention in my post is currently borrowed on the HECM or Reverse Mortgage at $240,000 and climbing on a property valued @ $145,000. FHA will insure any value it seems and we are in the central part of America, not CA.

      • Tal, my comment was regarding PROPRIETARY reverse mortgage loans, not HECMs. The former have been touted as an alternative to HECMs for condos that are not FHA approved, and my point was that the vast majority of such condos fall below the $500K value threshold set by the proprietaries.

        Your point about disposition of the property at loan termination is completely different, but nonetheless disturbing. I would imagine that either your condo development at one time – perhaps still – was FHA approved, or the units you describe were collateralized with HECMs when ‘spot approvals’ were previously permitted some years ago.

        I am not involved in the HECM servicing and/or termination process, but would think that the problems you describe are a function of the servicer – NOVAD – not HUD policy. HUD is receiving NO payments on these mortgages, and in fact is incurring mounting charges against the insurance fund for the interest on these loans. It is NOT in HUD’s interest for such properties to languish unsold.

        I would suggest that you contact your local HUD office and bring the situation to their attention.


    I am a property manager of a 245 unit condominium community. I currently have 2 vacant units in our community and it is because they are owned by HUD as a result of a reverse mortgage where the owners passed away. The children did not want to take ownership of the units because the debt on the unit was far more than the value of the unit. One of these units will be vacant for 3 years this coming January and we have not received any dues payment from HUD and they aren’t required too pay them. We will never collect the more than $13,ooo dollars in unpaid dues because HUD is not required to pay them and our lien on the property is not worth the paper it is written on. In the meantime HUD is being paid on the mortgage of the property backed by the U.S. government. Since HUD is being paid on the “insured mortgage” by FHA, they are in no hurry to sell as long as the insured mortgage is being paid. HUD gets paid and the dues to the HOA DON’T get paid and there is no recourse. After $16,000 in legal fees on the unpaid $13,000 dues we are now at a total loss of 29,000 and climbing as HUD and NOVAD will not respond to our calls or request to clean up limited common areas (patios and flowerbeds). To keep the property looking nice we bare the expense of upkeep and HUD gets the benefit of our efforts. The second unit is now 7 months vacant with no dues being paid to the HOA and no response from HUD on this one either.
    Why do you think only 6.5% of all HOA’s are FHA approved? It is because they don’t want to be because of the way HUD benefits from a reverse mortgage with the payment guarnteed and no repercussions for not paying the HOA dues while vacant.
    This plan is terrible for HOA’s period! I am so glad I am eligible for retirement in 2 years so I won’t have to deal with vacant units from reverse mortgages.
    Who you will hear singing the praises for this new ruling are the lenders because they will get paid their fees for making the loan deal. HOA’s will be left holding the bag and getting no payments from HUD for the dues even though the maintenance of the property must go on.
    This is truely a sad ruling for the HOA’s. Think about it, 92.5% of the HOA’s don’t want to be FHA approved. There IS A REASON for this.

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