The Department of Housing and Urban Development (HUD) announced earlier this month 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, allowing those seniors to engage in reverse mortgage loans for single condominium units.
While HUD and the Federal Housing Administration (FHA) at one time allowed “spot approvals” which allowed single units in non-FHA approved buildings or communities to become FHA-approved on a case-by-case basis, such approvals were eliminated in 2009. An FHA proposal that would bring back spot approvals was opened for public comment in 2017, but nothing on that front materialized until this new process was announced.
FHA estimated in its August 14 announcement that this new policy will notably expand the number of condominium projects that are now eligible for FHA approval. Under the current structure, 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, according to agency data.
Reverse mortgage lenders from across the industry agree that this newly announced rule will serve to expand the availability of reverse mortgages.
“For many seniors, it can be a struggle to obtain a reverse mortgage on their condo, which is why we launched a specialized division in 2016 to help borrowers obtain FHA approval, and this policy change should help elevate that program,” said Jesse Allen, EVP of Alternative Distribution at American Advisors Group (AAG), in an email to RMD. “The challenges facing many older homeowners are real and we welcome positive changes that will enable lenders to serve more of this need no matter the property type.”
AAG developed its dedicated condo division based on the number of potential borrowers who were shut out of the reverse mortgage market because of their condominium complexes’ lack of FHA approval, and the complexity of the rules that can actively discourage homeowners associations (HOAs) from beginning the approval process in the first place. While its division had recorded a 98 percent success rate in getting complexes approved, this new rule aims to shorten and simplify that process.
Another lender that has a dedicated condominium division is Reverse Mortgage Funding (RMF), which remains optimistic about what this new rule will mean for their condo efforts pending an internal review.
“At first blush, the newly loosened FHA condominium rules look to be a positive change for the industry as a whole,” said Mark O’Neill, wholesale and correspondent national sales leader at RMF. “We hope that these recent developments will help to eliminate hurdles for older condo owners and buyers who want and/or need a HECM reverse mortgage. RMF is currently reviewing all of the updates and documentation surrounding the revised guidelines—we will be sharing more details in the coming weeks prior to the October effective date.”
Other lenders are open with their perspective that this new rule will improve the health of the Home Equity Conversion Mortgage (HECM) program.
“We are excited to see this much needed change for condo homeowners,” said Melissa Macerato, EVP at Longbridge Financial in an email to RMD. “Improving the HECM program so that its available to more borrowers is a step in the right direction.”
Counselors on the new rule
Reverse mortgage counselors serving condo-owning prospective borrowers also see this as a potential boon for their clients.
“This rule change will open up eligibility for a reverse mortgage to many more owner-occupants of condos,” said Kathy L. Conley, stakeholder engagement specialist at counseling firm GreenPath Financial Wellness, in an email to RMD. “We have talked with clients who attempted to obtain a reverse mortgage only to find out that their condo complex was not FHA-approved and therefore could not. This is an issue/action that has long been talked about and reviewed.”
GreenPath is approved to offer counseling for both traditional HECMs and multiple proprietary reverse mortgage products. They are likely to see an increase in reverse mortgage counseling session requests as the effective date of October 15 approaches, Conley said.
The new rule should also reduce instances where clients, running into roadblocks concerning FHA approval for their complexes, elect not to close. This is according to Jennifer Cosentini, housing director at Cambridge Credit Counseling Corp. in Agawam, Mass.
“We follow up with all of our clients twice within six months and we often find that the condo owners are not closing for several different reasons,” she says. “We see many of them come back to us needing a second or even third counseling session because their certificate expired and they are still waiting on FHA approval for the condo. This new rule should make a big difference.”
The originator perspective
On the originator side, this new rule could make a significant difference in the quality of life for a senior looking to downsize from a single-family home and into a condo, according to Scott Harmes, manager of the C2 Reverse division of C2 Financial Corp in San Diego, Calif.
“As an originating manager, this is something we hit on a daily basis,” Harmes tells RMD. “This week, we even had an instance where we couldn’t meet the proprietary requirements for a [condo-dwelling] senior, but we could meet them for [a HECM loan].”
Unfortunately, this client’s condominium complex didn’t have FHA approval, so the introduction of this new rule will have a very big impact on the potential for her to get a reverse mortgage on her unit.
“This new rule is like the sun coming up for this senior,” Harmes says.
This edition of the RMD Report is sponsored by national appraisal management company Class Valuation.