Steve Doyle’s Blog

On August 13th, I posted the original HUD Does It Again! In that post, I noted some serious concerns with the June 12, 2009, Mortgagee Letter (2009-19) regarding the Condominium Approval Process. This original Mortgagee Letter noted an effective date of October 1, 2009. In a recent communication between HUD and the National Association of Home Builders (NAHB), HUD staff announced the effective date of Mortgagee Letter 2009-19 would be delayed until November 2, 2009. We are still awaiting written confirmation of this change.

Additionally, NAHB staff learned of other areas that HUD is considering changes to in the subject Mortgagee Letter. Specifically, with regards to FHA Concentration, the HUD staff indicated the agency was considering increasing the stated level of “no more than 30% of the total units” having FHA financing, to a level of 50%. While this level is still unacceptable, HUD staff also indicated they may be willing to discuss an exemption procedure that would allow higher levels of concentration. More to come on that issue.

With regards to the presale obligation, 2009-19 stated that “at least 50% of the total units must be sold prior to …” the first closing of a home with an FHA loan. HUD staff has indicated that they are contemplating a reduction in the presale obligation to 30%.

2009-19 also required a “Transfer of control to the Homeowners Association” no later than 120 days after 75% of the units in the total project had closed escrow or 1 year after completion of the project. This could also create problems for new homes builders and HUD staff has indicated they may add a third alternative, that being along the lines of whatever “…time frame is established under state or local condominium laws.”

And, finally concerns regarding the “Recertification of Project Approvals” were not addressed by HUD staff. Under 2009-19, all “condominium project approvals will expire two years from the date it has been placed on the list of approved condominiums.” This means, if a new home builder has a large project that has been selling for 18 months and will not be sold out by 24 months, the project must get “Recertified” for approval to utilize FHA financing. How long will recertification take? What new conditions will apply to the recertified project? What happens to Buyers in escrow during the Recertification process? And, how will concentration and presale requirements be interpreted in the Recertified project are all unanswered questions at this time.

Additional concerns regarding a 50% minimum owner-occupied condition, investor limitations and the impact on resale financing options are all unaddressed by HUD staff at this time. New home builders, lenders and real estate agents from around the country continue to press HUD staff on these questions and more. How and when the issue of the delay in implementation will be addressed and whether a new Mortgagee Letter will be sent out or a revised 2009-19 letter will be issued are also unanswered.

And finally, I continue to be perplexed by why HUD is dealing with such sweeping changes to their Condominium Approval Process in a Mortgagee Letter, instead of going through a more formal regulatory approval process. Mortgagee Letters are usually reserved to deal with specific issues and or interpretations of exiting rules and regulations. 2009-19 is a sweeping and all encompassing change to the Condominium Approval Process. Such change not only deserves, but demands a more formal approval process, providing the public, stakeholders and administrators the opportunity to comment and highlight potential issues for implementation, so that such issues may be thoughtfully and cumulatively reviewed prior to implementation. Why is that regulatory approval process not being followed here?