Changes to Condo Financing

article submitted by Dan Coffey
 
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The Times are A-Changing

Currently all FHA Condo approvals are done by HUD (FHA).  That is known and HRAP – HUD Review and Approval.

FHA is now introducing  DELRAP. DELRAP stands for Direct Endorsement Lender Review and Approval Process. As of October first DELRAP will be the (primary) way that condominiums will be approved for FHA.

A Short History of Condo Loans

For Sale at Union Street Station

Condo Lending Rules are Changing

As is my nature, some history.  (No, I don’t live in the past – at least I don’t think I do – but perspective and context help people better understand something).

Prior to 1983 we had to send all conventional condominium approval requests direct to FNMA (aka Fannie Mae) or FHLMC (Freddie Mac).  FNMA would issue a “Silver Book” every quarter (it actually had a silver cover) containing the names of all condominiums they had approved or were in the process of reviewing.

President Reagan felt the government was wasting money employing condo approval staffs in 8-10 offices around the United States.  In his mind, lenders knew what the approval guidelines were, so he said let the lenders determine whether or not a condo met the guidelines.  FNMA/FHLMC would only keep enough people in the agencies to do periodic audits.

The lender would ‘approve’ the project and then “warrant” to FNMA on each loan they sold that the project was OK.  (If you have ever heard of ‘non-warrantable’ condos, that applies to a project where the lender can’t say it meets FNMA/FHLMC guidelines).

By FHA going to the DELRAP process they are doing the very same thing that FNMA/FHLMC did 26 years ago – turning the approval responsibility – and risk – over to the lenders.

Important Points for DELRAP changes

1) It is effective October 1st

2) Lenders who have ‘unconditional direct endorsement authority’ can only choose one processing method or the other – send all project approvals to HUD or make all project approval decisions ‘in-house’.  Most will approve in-house, which means they will be extra careful to dot every i and cross ever t.

3) Each lender is responsible for sending to HUD their 1st five DELRAP approval packages for review to make sure HUD feels they know what they’re doing.  After the 1st five, HUD will periodically pull other project approvals for review as quality control.

4) The lender must submit their approval package of any condominium within 5 days of said approval.

5) When a lender approves a project HUD will place the project on their list of approved condominiums.  After it is on the list, other lenders can use that approval, but will need to collect any information they deem necessary to make sure the project still complies with regulations (things such as owner occupancy concentrations will likely be the focus).

6) Condo project approvals will expire two years after going on the approved list and projects currently on FHA’s approved list will expire in two years

7) Further participation in the FHA program after an approval expires will require re-certification of HUD Owner Occupancy requirements.

8 ) DELRAP will apply to existing projects, proposed or under construction and condo conversions.

9) The DELRAP will apply to existing, new/proposed and conversions.

10) With the introduction of DELRAP, after October 1st the FHA Spot Condo Approval process will be eliminated.


 

Dan Coffey, Branch Manager Bank of America

Dan Coffey, Mortgage Broker

Author:

Dan Coffey
Mortgage Broker

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One Response to “Changes to Condo Financing”

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  1. Darren says:

    The spot approval was important as it was just filling out a short 1 page form. The new process will require a large paperwork nightmare and many fees and 10,000 or more to get whole condo complex approved. This combined with condo financing issues (you need 25% down) and most in Gainesville not fha approved, means condo prices will continue to tank.

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