FHA Revises Single-Unit Condo Approval Forms for Reverse Mortgages

The Federal Housing Administration (FHA) on Monday announced that it has revised two of its forms relevant to condominium owners seeking FHA relief in the form of loan programs or certification: its condominium loan-level/single-unit approval questionnaire and FHA condominium project approval questionnaire. This is according to the publication of Mortgagee Letter (ML) 2021-09, released on Monday morning.

Both forms have relevance for the Home Equity Conversion Mortgage (HECM) industry, as they will each be required for any borrower seeking to get an FHA-sponsored reverse mortgage on a condominium unit. Form HUD-9991 is needed for anyone seeking a HECM loan on a single-unit condominium, while form HUD-9992 is used to process FHA approval for condominium projects.

FHA requested public comment for revisions to these forms in early 2020, through the announcement of a publication in the Federal Register.

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Single-unit approval questionnaire

U.S. Department of Housing and Urban Development (HUD) form HUD-9991 is used to process single-unit and loan-level approvals for both forward mortgages and HECM loans. Using input solicited from the public beginning at the end of January 2021, FHA has made a series of changes to the relevant document coming in the form of information consolidation, and the outright elimination of certain select provisions.

Among changes specific to form 9991, it has removed a section requiring information on management company; restructures a section concerning occupancy requirements by construction type; relocated sections concerning hazard and flood insurance, respectively, and requires additional insurance for single-unit approval.

The revision also removed a section requiring documents for all units and certain additional documentation required for single-unit approvals, though a mortgagee must still submit required documentation as outlined in the 4000.1 single-family housing policy (SFHP) handbook.

Condominium project approval questionnaire

For the condominium project form 9992, changes include the consolidation of sections relating to a project eligibility worksheet and condominium project approval; combining mortgagee and submitter information in section 1 to allow more kinds of respondents to complete and submit the form; removing some select questions from the project eligibility section; and restructuring a section related to occupancy requirements by construction type.

Data collection and eligibility determination in several sections was also changed, including in the legal phasing; units in arrears, individual owner concentration, occupancy requirements by construction type, financial stability and controls; commercial/non-residential space; litigation; leasehold interest; transfer of control; insurance requirements; and legal restrictions on conveyance sections.

Similarly to a change on form 9991, a section on form 9992 was also removed requiring documents for a condominium association and for the form submitter, though a mortgagee must still submit required documentation as outlined in the 4000.1 SFHP handbook.

How changes apply to both forms

There are a few things to note in terms of how changes apply to both forms, according to HUD. First, data collected on the questionnaire can now be collected no more than 90 days prior to the questionnaire being signed. Second, instruction explaining precisely how questions should be answered have been developed, and have been added to the 4000.1 SFHP handbook references section.

Also importantly, the requirement saying that the relevant condominium association must complete the forms and sign their certifications has been removed entirely. If the “submitter’ on form 9992 is the association, they will still need to complete the certification, according to the text of the ML.

Recent history

FHA published a final regulation and policy implementation guidance in August, 2019 establishing a process for condominium approvals, effective October 15 of that year, which aimed to expand FHA financing for qualified first-time homebuyers as well as seniors looking to age in place. The new rule introduced a single-unit approval procedure that eased the ability for individual condominium units to become eligible for FHA-insured financing, and also extended the recertification requirement for approved condominium projects from two years to three.

The rule was 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 then-Acting HUD Deputy Secretary and FHA Commissioner Brian D. Montgomery. The moves garnered praise from the reverse mortgage industry.

Shortly afterward, HUD published an ML detailing specific procedures necessary to get a case number assignment for a single-unit approval, before issuing another ML the following month which updated the origination requirement for FHA mortgages on condominium units, applicable to both the traditional, forward mortgage and reverse mortgage programs simultaneously. The letter provided additional clarification ahead of the rule’s implementation on October 15, 2019.

At the end of January 2020, HUD published “Project Approval for Single Family Condominiums,” a notice in the Federal Register seeking comment on data collection related to essential forms used to determine the eligibility of loans for borrowers who live in condominiums. The changes laid out here are a result of the public comment period.

Read Mortgagee Letter 2021-09 at HUD for information related to the precise numbering of sections modified on the relevant forms.

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