Blog of the Mortgage

HUD Extends time for Spot Approvals - Other Condo Updates

September 16th, 2009 9:38 PM

I originate loans all over Northern California. From Eureka to Sacramento to Modesto.. ALL OVER. Condominiums have been popping up all over the place in the last 10 years.
They're like cheap boxes in towers, too many of them remind me of Hotels. I've got friends that have purchased or rented these units and I feel like I'm at a Marriott or something. The upside (as opposed to my house from 1916!) is that there is NO maintenance, other than cleaning inside your walls everything else is totally handled. PERFECT for single folks, older folks, people with no time (or money) to do lame things like mow the lawn or coat their basement with water proofing paintx2 or rebuild/replace their "good neighbor" fence by hand (like me).. :)

Well, needless to say, Condo's are cheaper by the dozen now. $55,000 in Richmond by the BART? YEP.. Formerly $1.3 mill 2/2 in South Beach (SF) now $729,750.. you better believe it..
We knew they were going to fall in price but no one knew the programs would go away or that FNMA would stop approving projects.
SO, now that FHA/HUD is the way to go and Florida has entire Cities of Towers that stand empty and every Lender with over-Exposure in the two "Sunshine" states has been forced out of business we have loads of cheap first time units with no way to close on them (well almost - unless you have significant Down).
**Franklin American STILL writes CONFORMING ($417K condos to 90% with 720 scores and 41% DTI).

Of course none of the builders/developers got their projects HUD approved because it simply didn't compute. The loan sizes were too small for their needs.

Since 2008 we've been gaining SPOT approvals in projects with more than 5 units and 51% owner occupancy.

SPOT approvals are a great tool to gain FHA financing in existing projects and get your new buyer in to a low maintenance first time home purchase.
Franklin American it turns out is one of the few key players that actually gets these loans done and done on time!
Please note: we require a minimum of 10 units with max 10% TO FAMC vs. HUD which says Min. 5 units with 20% HUD Financed
over 30 units we go down to 5% FAMC FHA units in a project.

In any case HUD changed all that with ML09-19. GENIUS they thought:
FNMA does away with Condo approvals and private investors leave the market? HUD will fly in with a cape and SAVE THE DAY IN CONDO LAND!

With ML09-19 they are doing away with SPOT approvals entirely and letting any lender approve any project. They are also lowering the threshold number of units from 5 to 2 which is technically HUGE!! There are soo many Condo units that could potentially start flying off the shelf if this played out the way HUD envisioned.

!!STOP...!!
Give HUD a call.. they sooo messed this one up. They'll tell you so.
NO ONE; Literally NOT ONE LENDER has ANY interest in standing up and doing what HUD is asking them to do:
Self approve a project on their own!
DOH!
So, HUD has delayed the findings for ML09-19 from October 2nd until November 2nd of this year (we'll see if they don't suspend again?).

That means you get an extra 45 days to get your CONDO's SPOT approved with GREAT LENDERS like the one I work for.

Other Important Condo Updates:
Don't you just love it when "Old" guidelines finally make their way to funding conditions? - I'm just saying..

FNMA Requires $2 Million in liability insurance for sub 100 unit projects AND $3 Million in liability Insurance for greater than 100 unit projects!

HO-6 insurance required on ALL condo units now (thanks to Mari P for digging this up):
Announcement 08-34 December 16, 2008
(yes its really THAT old!)

Hazard Insurance for Units in Attached Condominium Projects Including 2-4 Unit Projects

The Selling Guide, Part XII, Chapter 5, Insurance Requirements require that lenders verify that hazard insurance for all condominium projects with attached units, including two- to four- unit projects, covers fixtures, equipment, and other personal property inside
individual units if they will be financed by the mortgage.

The updated policy now requires that the borrower obtain a "walls-in" coverage policy (commonly known as HO-6 policy) unless the lender can document that the master policy provides the same interior unit coverage. The master policy must include replacement of Announcement 08-34 Page 7 improvements and betterment coverage to cover any improvements that the borrower may have made to the unit.

The HO-6 insurance policy must provide coverage in an amount that is no less than 20 percent of the condominium unit's appraised value. In the event such coverage can not be obtained, the lender should call the Fannie Mae Project Standards Department at the phone number listed at the end of this Announcement. The standard requirement for a 5 percent deductible applies.

Have a great week!

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Have a great Summer Selling season.

You'll need the following links to download these forms:

Education Station
Government Loan Programs

Remember to Go out and have fun!

Posted by Raoul Badde on September 16th, 2009 9:38 PMPost a Comment (0)