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Have You Heard a Clock Ticking?

January 23, 2010

Tick, tick, tick. The clock has been ticking on FHA condo lending. Several times as the alarm was about to go off, the clock was reset and additional time was granted. Again the clock is about to run out, February 1st is the new deadline.

I had hoped that alarm clocks would be ringing loud enough for every senior in a condominium to wake up and smell the coffee, but it seems that this has been a well kept secret and very few realize what this means to potential borrowing which includes Reverse Mortgages.

Time to know your options.

When the clock stops on February 1st, all condominium complexes will lose existing FHA approval.  New applications for FHA approval must be submitted.  Until new approvals are granted by the Federal Housing Administration, no new FHA loans will be available for condo purchases, FHA condo mortgages, including condo Reverse Mortgages. Even those projects that had been pre-approved previously will now have to be re-approved before the reverse mortgage will be issued.

Prior to this a condo owner could apply for approval and the lender involved would be required to use what is called a “FHA Spot Condo Affidavit.” This one-page document would be used when the condo had not been previously approved by the FHA. February 1st the slate will be wiped clean, all projects which had already been on the approval list will go back to square one. Each project will have to acquire new approval through one of two processes:

1. HUD Review and Approval Process (HRAP) – This is now the standard process to receive approval for condominium projects.

2. Direct Endorsement Lender Review and Approval Process (DELRAP) – This form of approval is only given to those lenders who are already approved by HUD to give approval for condominium projects.

As we all know, the wheels of government do not move quickly and this process will be no exception. One rule is that no more than 15% of the owners can be more than 30 days in arrears. In today’s economy this could eliminate many condo complexes and create hardship for many seniors seeking a reverse mortgage. We all know seniors have been especially hard hit, maintenance fees have risen but seniors did not get an increase in their social security this year. Seniors are living on a fixed income with “un” fixed and rising costs. The need and desire for reverse mortgages is greater than ever.

Other rules include 50% of the units in a condo project must be owner occupied. Florida projects can have a high ratio of non-homesteaded units, again creating additional difficulty in achieving approval. However, bank owned and vacant units previously were counted in this ratio and under the new guidelines will no longer be calculated, which will be a plus to the new process. Also, the allowance for the number of units that can be financed with FHA loans will be increased from 30% to 50%, another plus.

Once a condominium project is approved by FHA, it will still need to be re-approved every two years. This enables FHA to ensure that the buildings are kept up and continue to meet their standards. The only exception will be for new buildings, which are approved for 10 years.

If you have been on my mailing list, you already knew this was coming. You have heard the clock ticking and probably were among the several condo owners that choose to complete the process prior to the new rules. Of course there is always a chance that the clock will again be re-set. Whatever happens, condominium owners have no guarantee that their home will meet the requirements set forth by HUD.

Golda Meir said, “I must govern the clock, not be governed by it.” You may be planning to retire better with a reverse mortgage. In which case, you need confirmation that your home will qualify. Tick, tick, tick, call me and know what your options will be.

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