There are major changes on the way for developers of condo projects and existing condo owners who want to get approved for FHA financing. These changes are set to take place October 1st, 2009. But the ramifications are going to start being felt right away. The details are outlined in the Mortgagee Letter 2009-19 that was issued on June 12th by HUD. In this latest Mortgagee Letter FHA is announcing dramatic changes to their Condo Approval Process and the ELIMINATION of the Spot Approval Process. While these changes reduce the documentation and requirements for Full Condo Approval, it will place a lot more work and responsibility on Lenders.
The processing options will be applicable to condominium developments that are:
1. Proposed/Under Construction;
2. Existing Construction; or
3. Conversions
One very negative aspect of these new guidelines is the elimination of the “Spot Loan Approval” process. According to HUD “The DELRAP and HRAP processes have been streamlined to allow for uncomplicated condominium project approvals eliminating the need to approve units on a “spot loan” basis.” But this new approval process may add a significant amount of time to the approving a Condo Project compared to the current quick “Spot Approval” process. Current loans in process may be in jeopardy because lenders may be worried they may not be able to sell “spot approved” loans back to FHA if they don’t get submitted soon enough.
Bottom line almost all FHA condo approvals will be GONE on October 1, 2009. We will be starting from scratch with no approved projects until lenders start submitting approval packages to HUD. Because FHA financing on condos will come to a screeching halt for a period of time, it is imperative that Realtors understand the importance of moving those condo listings NOW. GHA buyers have to get off the fence NOW. Who knows when the project will be back on the approval list?
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