David H. Stevens, Federal Housing Commissioner, occasionally post on HUD/FHA’s website in a series called, “From the Desk of the Commissioner”. A recent release “From the Desk…” clarified the condo changes which took effect December 7, 2009 and issued a waiver to one of the new rules.
The Changes from December 7
Here is a brief excerpt “From the Desk of David H. Stevens” which bullet points the main changes to Condos effective Dec. 7, 2009:
- Modified the 50% owner occupancy requirement to allow the exclusion of vacant and tenant-occupied REOs from the calculation
- Reduced the pre-sale requirement from 50% to 30% of the total units
- Increased the FHA concentration limit from 30% to 50%
- Relating to site condos, condominium project approval is not required
For the full details check out the mortgagee letters (2009-46A & 2009-46B) issued by HUD.
The Waiver
Due to mortgage lenders concerns surrounding the implementation of one of the changes mandated in the mortgagee letters mentioned above HUD has issued a waiver. Here is what the waiver concerning Condominium Unit Insurance Requirements for HO-6 Coverage states:
The requirement for HO-6 insurance coverage for condominium units under ML 2009-46 B is hereby waiver for a period of one year from today’s date, as established by the above determinations and conditions.
This waiver was issued April 29, 2010 and will therefore expire April 28, 2011.
What is HO-6 Insurance?
Per HUD:
HO-6 coverage is a “walls in” policy that protects the interior improvements and betterments in the event of perils such as bad weather, fire, explosion, and theft.
The Impact of this Waiver
Each individual investor makes determination to abide by HUD waivers or not. Some investors make the decision to not allow for temporary waivers in the expectation that the waiver will eventually be lifted. To avoid complications many investors choose to follow the rule issued on December 7 and ignore this waiver.
The mortgage industry has changed and we are now in the “Era of Overlays“. Overlays are the individual investors rules above and beyond the restrictions of the actual loan program (FHA, VA, Conventional). Each mortgage investor has a different set of rules mortgage loan officers must follow. To be sure you meet the overlays set by each investor you must work with a knowledgeable mortgage loan officer who understands these overlays and can find the best loan within the rules of the loan AND the investor.
