Publications
FHA Certification
EMERGENCY CLIENT ALERT
NEW FEDERAL REGULATIONS
February 2010
We want to advise our clients of new federal regulations that went into effect on February 1, 2010. These regulations impact financing of purchase loans for units in condominium and townhouse associations and have the potential to cause far-reaching changes to financing of the sale of units in associations. In fact, if matters play out the way we think they will, substantial numbers of potential purchasers at non-complying associations will be frozen out, effectively eliminating the ability to sell units at those associations.
HOW HAS THIS COME ABOUT? Late last year, the Federal Department of Housing and Urban Development (HUD) passed a set of new regulations dictating terms under which the Federal Housing Authority (FHA) will be able to offer mortgage insurance on multi-family dwellings. For an excellent synopsis of the history of FHA financing, we have attached an article written by Christopher Gardner of FHA Pros, a company that specializes in obtaining FHA financing for associations.
SO WHAT DOES THIS MEAN FOR YOUR ASSOCIATION? At the present time, less than 50,000 associations in the United States are FHA certified. As of December of 2010, those associations certified more than two years earlier will have to be recertified. After that, all association certifications will need to be redone every two years. What this means, in our opinion, is that if your Association is not currently FHA certified, you WILL NOT be able to have any FHA closings at your Association for loan applications signed after February 1 of this year. Inasmuch as FHA financing already accounts for a majority of financing of sales at associations (we are hearing estimates that FHA’s total market share may rise to 70-90% of all sales by the end of the year), this means those owners at associations that are not FHA approved will eventually have virtually no ability to sell their homes to buyers who need a mortgage. We believe this situation is potentially disastrous for our clients’ property values and hence the “EMERGENCY” in the title of this letter.
We are already hearing about delays in HUD processing of applications for certification. There are only four HUD offices in the entire country handling applications. In the last couple months, volume has skyrocketed to 8,000 pending applications. Wait time for approval for properly filed applications is currently about two months and rising. There are literally hundreds of thousands of additional applications that will need to be filed this year and we are concerned that unless HUD opens more offices or changes their procedures, we could end up with the regulatory equivalent of gridlock in the application approval process. Those associations that delay in applying may end up with unhappy owners who cannot sell units.
WHAT CAN YOU DO? There are three ways to go about getting an association FHA certified. The first is to try and do it yourself. This involves submittal of documents and certifications in compliance with HUD regulations. We believe associations will be unlikely to be successful utilizing this process. When we spoke with a HUD representative about this method, their response was “well, you can submit it yourself I guess, but we’re not really set up for that”. Not exactly a ringing endorsement.
The second way to obtain FHA approval is to wait for a lender to file an application for you. Unfortunately, most lenders have little incentive to go through this process simply to do one or two closings in an association. Furthermore, if a lender does undertake this process and does it wrong, an association could be bound by any mistakes the lender makes, resulting in delays or rejection of the application. We are hearing that some lenders are telling associations they will handle FHA certification for very low prices, but when we check with them we find they do not know the procedures required for certification and are essentially asking associations to do the bulk of the work. Note that if an application is denied for some reason, HUD regulations require at least a one year wait before refiling.
The third way is to retain a third party to handle the process for you. Our firm is working with FHA Pros to get as many of our association clients approved as soon as possible before delays become interminable. If you are interested in retaining their services, they can explain what they do (including information and documentation assembly and submittal of all necessary forms) and whether your Association qualifies under the new regulations. Our firm will do all necessary legal document review. The total fee for FHA Pros is $1,000 and the total fee our services is $950 (our fees are included free of charge for those clients on our Premium Legal Protection Retainer Plan). Note that HUD regulations allow associations to recoup these amounts from future purchasers, resulting in no long-term net cost for you. If you are interested in starting this process, you can contact FHA Pros to determine eligibility. Their contact information and website are listed below. Or, if you have further questions, feel free to contact us to discuss. We recognize that this issue is of great concern and we are available to answer your questions.
Please Note. Not all Associations are eligible for HUD financing. FHA Pros has the largest database in the country in terms of FHA certification and eligibility and can advise you of your chances for approval. Note also that single family home associations are not covered under the new regulations and are still eligible for spot approval on a per closing basis.
Robert P. Nesbit, Chairman
Kovitz Shifrin Nesbit
FHA Pros
Christopher Tholberg
1-888-531-1119