HUD Releases New Condo Rules for Reverse Mortgages

The U.S. Department of Housing and Urban Development (HUD) issued a new Mortgagee Letter (ML) late Thursday updating the origination requirement for FHA mortgages on condominium units, applicable to both the traditional, forward mortgage and reverse mortgage programs simultaneously. The letter provides additional clarification ahead of the rule’s implementation on October 15.

“FHA published ML 2019-17, Home Equity Conversion Mortgage (HECM) Program – Condominium Requirements, which outlines the updated origination requirements for HECMs in condominium projects in accordance with the recently published Single-Family (SF) Handbook guidance,” said HUD in a press release. “It also includes certain borrower eligibility requirements for seniors seeking to obtain a HECM for a condominium unit using FHA’s Single-Unit Approval process.”

Read the FHA INFO notice and the full Mortgagee Letter at HUD for further details on the changes.

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Last month, HUD announced a forthcoming rule designed to make it easier for condo owners to get reverse mortgages and other FHA financing. The new rules related to condominiums going into effect next month will expand FHA financing for qualified first-time homebuyers as well as seniors looking to age in place, according to an August press memo released by HUD.

“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],” said FHA Commissioner and Acting Deputy HUD Secretary Brian D. Montgomery on an August 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.”

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

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  • Do you know what the difference is between the current 95-page condo complex approval guide and the proposed single-unit form? The SUA form does not require bylaws, articles of incorporation, plat map, or management agreement. Those four documents are NOT the reason that only 5-6% of condos in this country are FHA-approved.

    I asked HUD if they are going to review the CC&Rs that we submit as part of the SUA process for leasing language (one of the main reasons there are so few condos approved) and they would not answer the question. They responded, but basically said they wouldn’t share that information at this time. It’s not clear to me what they are going to review before assigning the case number, nor how long it’s going to take them to review the required items.

    We are still waiting to see if the SUA process will address any of the main issues that stand in the way of writing FHA loans against condos, which are –

    1) An HOA or MGT company standing in the way (this comes in many forms)
    2) Leasing language is not compliant
    3) Reserves are not sufficient

    Leaving the power in the hands of the HOA or MGT company to me is the real deal breaker. Why would they go through all the work to complete the 5-page SUA form and supply the documents when they can supply four more and get the complex approved for three years?

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