FHA Eases Concentration, Other Condo Rules

By Robert Freedman, Senior Editor, REALTOR® Magazine

In an effort to give condo lending a boost, FHA yesterday released a mortgagee letter (2009-46 A) that lets lenders make loans to condo buyers even if it means 100 percent of the project units would have FHA financing.

That’s a level of market exposure far above what FHA is allowing in its baseline rules (which you’ll find in another mortgagee letter: 2009-46 B), which limit FHA concentration to no more than 30 percent of units.

FHA is also easing its 50-percent owner-occupancy requirement—long an industry concern—by allowing lenders to exclude foreclosed properties in their calculation. That could go a long way in helping buyers in the hardest-hit areas tap FHA financing because it means none of a project’s distressed units count against the owner-occupancy limit.

The agency’s also allowing lenders to make spot loan approvals until February 1, 2010. If you’re not familiar with spot approval, it’s an authority given to lenders to finance one unit in a project that hasn’t yet been approved by FHA for financing.

These and a few other changes that reflect a realistic assessment of today’s market conditions take effect Dec. 7 and they last, with the exception of the spot approvals, until the end of 2010.

If you’re going to San Diego for the 2009 REALTORS® Conference & Expo this week, make it a point to hear FHA Commissioner David Stevens in the An Hour with the FHA Commissioner session. He will almost surely cover these condo rule changes as well as FHA’s recent guidance on appraiser selection. That guidance has been widely praised for helping to bring clarity to implementation issues that have plagued the Home Valuation Code of Conduct (HVCC), the set of guidelines adopted by Fannie Mae and Freddie Mac earlier this year.

I had the privilege of interviewing Stevens a couple of weeks ago on FHA’s appraisal guidance, condo rules, and financial health. If you’re interested in what he has to say, you can listen to excerpts here.