The Federal Housing Administration (FHA) earlier this month 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 March 15.
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. Reverse mortgage loan officers in two major origination areas are very encouraged by this news, as is a company who has worked with originators to facilitate both single-unit and full project approval.
Based on input from these professionals, the possibility of originating more condo business than could be prior to the changes is a possibility, while the changes also account for some basic quality-of-life improvements in terms of the processes of loans on condominium units, they tell RMD.
For reverse mortgage originators who find themselves doing a fair amount of condo-related business, these changes should account for some much-needed efficiencies in the processes required for taking out a HECM on a single unit. Tom O’Donoghue, principal at Reverse Loans Now in Southern California, says that the revised forms as laid out in the two MLs will help ease the condo side of his business, which he says sits at about 31% of his total originations across condos and townhouses.
“I’m pretty familiar with going through the process,” he tells RMD in an interview. “It just adds time, getting them approved. I’ve been fortunate that every submission I’ve made has been approved by getting the projects done, and many investors are very helpful. I haven’t done a condo in probably about six months, but now, I have three of them in process that are already FHA-approved.”
For Wendy and Paige Oshiro, the only two reverse mortgage loan originators who operate in the Honolulu, Hawaii branch of Open Mortgage, 20% of originations the branch has processed have been for condo owners. In terms of how much business they have done compared with how much they think they will be able to do in the future, the pair says that these new revisions should make things easier.
“[We are not doing] as much as we expect to do in the future,” the pair says. “With the changes made to the fidelity insurance coverage requirements in November 2020 and the recent elimination of the HOA/property manager signatures on forms 9991/9992, we should be able to help more seniors living in condos going forward.”
When first hearing about the revisions to the forms, O’Donoghue contacted many of his Realtor referral partners to inform them of what the changes mean, how they could facilitate new FHA business on the part of condos, and how it would now be easier to use a traditional HECM as well as a HECM for Purchase (H4P).
Previously, the process for learning about whether or not a single-unit or a project had deficiencies in approval documentation was more laborious, O’Donoghue says. Now that these revisions are in place, though, he’s hopeful that things will be made easier not just for the loan officer, but also for the client.
“Just being able to go into the website, find out what’s missing in the documentation that’s at issue, trying to find it and see if it’s approved […] that’s just a time sucker,” O’Donoghue says. “It takes 30-to-45 days to go through that whole process, and that’s if everything goes well. So, if we can eliminate all that, that would just make it a more positive experience for the consumer.”
For Wendy and Paige Oshiro, working on FHA condo approvals was potentially rewarding but also came with the likelihood of an approval not coming through, the pair explains.
“Paige has worked on 22 FHA condo approvals from the beginning of 2020 to 2021,” they explain. “Of those, only six were approved – four full project approvals and two single-unit approvals. Another three were resuscitated after the changes, and one is still in the works. Eight could not be approved due to fidelity insurance issues or the unwillingness of HOAs to sign the forms.”
The time intensity of the entire process can sometimes lead to clients simply having to look elsewhere for other solutions, since they run out of time before they need to take care of their own affairs, the pair says.
“Most of these senior unit owners had to seek other solutions,” they explain. “The remaining condo approvals fell out for other reasons, including litigation, inability to obtain the required documentation or the borrower went with another option.”
The issue of requiring approval from the HOAs sounds very familiar to O’Donoghue.
“In Appendix A of one of the forms, it said that the Board of Directors of the association were personally liable for the accuracy of [approval] information,” he says. “So, they were just extremely gun shy to sign that form because they don’t want to risk being personally liable. So, the fact that that’s been removed out of the picture, and that issue was removed about five or six years ago, you still had board members that aren’t aware of that.”
That would often lead to outright denials without making themselves aware of the relevant changes first, O’Donoghue says. The fact that the new form revisions no longer require getting approval by the board members is a relief not just in the simplification of the process, but because the boards themselves only meet at certain regular intervals.
“The boards typically only meet once a month, sometimes it’s every other month,” he says. “So we might wait 30-60 days before even getting the board to approve and get it signed off. Again, it saves us time.”
Other HOAs, as the Oshiros explain in the state of Hawaii, also had a standing policy not to sign any company questionnaires not generated by a company, including those generated by the Federal Housing Administration (FHA).
“They also advised their HOA boards to do the same,” the pair explains. “We were repeatedly told throughout 2020 that this was their policy. As a result, we were unable to get approvals for these condos. With the new forms, this will no longer be an issue.”
Other good news, remaining work
One company that specializes in working with FHA and has assisted certain reverse mortgage lenders in getting single-unit and full condo project approval is also pleased to see the revisions to these forms, saying that there is more willingness on the part of HOA boards and property management companies to participate in the FHA single-unit approval process.
“We were happy to see the big change that came along with the new HUD Form 9991. Namely, the allowance for the underwriting to be collected from outside sources and then input into the new HUD Form 9991 by the underwriters, themselves,” says Yaniv Cohen, accounts director at FHA Pros, LLC in Northridge, Calif. “This has already made many HOA boards and management companies more willing to participate in FHA Single-Unit Approval, as they are no longer signing their names to a government form where the penalties for misreporting can be legally and financially impactful.”
The changes have also allowed for the use of lender-specific underwriting forms in place of HUD Form 9991, leading to faster turnaround on requests, Cohen says.
In terms of what can still be done to streamline the process even further, the Oshiros explain that property managers can certainly be more responsive to requests for information.
“Perhaps FHA could help with this problem by educating property management companies about FHA loans and the importance of obtaining or maintaining condo approval,” the pair explains. “It would also be nice if FHA would track approval expiration dates and then reach out to the management companies and assist them through the recertification process or provide instructions on how they can do it themselves.”
Still, the duo expects the new forms to largely improve the approval process, they say.