October 2, 2009

FHA Update - Many Condominiums Will Lose Approved Status Next Month

The Department of Housing and Urban Development (HUD) recently postponed the effective date of its new requirements for Federal Housing Association (FHA) condominium loans until November 2. According to a number of real estate professionals, HUD has also clarified that only condominiums that were placed on the FHA approved list on or after October 1, 2008 will remain on that list on November 2. Condominiums that were placed on the FHA approved list before October 1, 2008 will lose their FHA approved status on November 2, and they must reapply under the new requirements to get it back.

Some (perhaps most) of the Washington condominiums currently on the FHA approved list will unfortunately not be able to meet the new standards. The requirement that no more than 15% of the unit owners can be more than 30 days delinquent will make a large number of condominiums ineligible. The requirement to have a current reserve study, update it annually, and fund at least 60% of the amount specified in the most recent reserve study will keep many condominiums from qualifying. The requirement that at least 50% of the units must be occupied by their owners will further limit the number of condominiums approved.

Once HUD’s new requirements take effect, all condominiums’ initial FHA approvals will expire after two years. Condominiums must then complete a re-certification process every two years to maintain their FHA approvals. This process often involves a large investment of time to collect information and produce documents. Boards will have to weigh the desirability of FHA loans against the cost of preserving access to them.