Condominium Review and Approval Process

An established condo project must be approved by the agencies based on loan type. 

Freddie Mac: Accepts both Fannie and Freddie Condo Certified Projects https://sf.freddiemac.com/tools-learning/loan-advisor/our-solutions/loan-product-advisor

Fannie Mae: Accepts Fannie Certified or FHA certified projects only https://singlefamily.fanniemae.com/applications-technology/condo-project-manager

FHA: Project must be approved here https://entp.hud.gov/idapp/html/condlook.cfm if not approved, SUA must be submitted.

VA: Accepts FHA certified projects or must submit project via LGY for VA certification

If you do not have access to Freddie or Fannie condo cert websites please contact risk department who can assist.

The following transactions do not require a condo approval:

• Detached condo units
• Units in a 2-4 unit condo project
• Units in a PUD project
• Fannie Mae to Fannie Mae or Freddie Mac to Freddie Mac limited cash-out refinances with LTV ratios <80% and
• High LTV refinance loans
• FHA Site Condo

NOT CERTIFIED PROJECTS

If a certification for the project is not available, the following documentation is needs to be submitted to risk:

• Condo Questionnaire (Form 1076) Short form is not acceptable
• Effective Master HOI Policy
• Current Budget (reserve study if applicable)
• Legal and recorded documents

1. Conduct a pre-review of the above to determine eligibility (see below for pre-check factors that must be met) 
2. File will be submitted to UW at the same time as SUA/CPM or Freddie submission, ONLY if pre-check is cleared. 
3. For FHA: A case number assignment usually within 3 business days should determine if an Appraisal is ordered based on the UW decision. 

CONDO PRE-CHECK

1. The owner concentration requirement is 50% for FHA and conventional investment transactions. Meaning at least 50% of the units have to be owner occupied. 
2. FHA: The single owner concentration limited to only 10%. 

Conventional: Projects with 5-20 units cannot have more than 2 units owned by a single entity or

Projects 21 or more units single owner concentration cannot exceed 20%

Number of units per individual owner divided by the total number of units = single owner concentration. Then add all the single owner concentrations. 

3. Reserve balance needs to be at least 10% of the budget. Check current budget to ensure 10% of the total assessments are distributed to reserves. 
4. Hazard Insurance needs to indicate one of the following replacement endorsements: Otherwise, if a limit is present an estimate to rebuild must be provided to indicate the limit is sufficient coverage. 

5. Wind/Hail Deductible cannot exceed 5% for Fannie Mae. Can exceed 5% for Freedie Mac & FHA only if the HO6 covers the difference, see below. 
6. Roof or any other peril cannot indicate Actual Cash Value (ACV) or be excluded from coverage
7. Project cannot be pending litigation that relates to the safety, structural soundness, habitability, or functional use of the project per condo questionnaire.
8. Projects in need of critical repairs, including material deficiencies and significant deferred maintenance are not eligible.
9. Commercial Space cannot exceed 35% 
10. No more than 15% of total units are 60 days past due per condo questionnaire. # of units 60 or more days past due divided by total units. 

>5% Deductible Rule: 

Questions & Answers

Form HUD 9991, aka, Questionnaire

Q: Can we use a generic questionnaire?

A: Yes, information will then need to be transferred over to the Form HUD 9991.

Q: Who is required to complete the Form HUD 9991?

A: The Lender can complete it based on information provided from a Questionnaire.

Q: What certification forms, if any (App B, etc) are required for the Single Loan approvals?

A: Signed Form HUD 9991, the Appendix B is replaced by the 9991.

Q: What should be reviewed on the Form HUD 9991 prior to request of the case number?

A: Please see above Condo Pre-Check items, these are not reviewed by HUD and if not reviewed prior to case number request could result in obtaining the FHA SUA case number and the project being determined to be ineligible by PRD.

Q: May lenders obtain information required for case number assignment on the Form HUD 9991 (Sections 1 thru 3) verbally in order to request an FHA case number?

A: Whoever is signing the forms is responsible for the accuracy of the information provided.

Q. Is the Lender responsible for ensuring questions on the Form HUD 9991 are accurate?

A: The risk department analyses the 9991 for accuracy and completeness, if something seems inconsistent, risk will contact the preparer for clarification. Additional documentation may be required.

Financials:

Q: Are financial documents ONLY required for Single Loan approvals when there is commercial space?

A: No, a budget and current balance sheet is required for all FHA SUA reviews. If the project has commercial space, additional documentation is required per section 4.c. of page 3 of the Form HUD 9991.

Q: Is a project ineligible for approval if they do not have separate operating and reserve bank accounts?

A: Yes

Concentration:

Q: Can we only finance 10% of units on a project?

A: Only 10% of the project may be financed as SUA, that is, all lenders using SUA combined cannot exceed 10%. If you get your case number assignment, you know we are within the acceptable limits. NOTE: If project has FHA Concentration that exceeds 10% prior to request of SUA Case number, the project is not eligible for SUA.

Q: A project was approved and has expired. FHA has 45% of the loans insured. Can we do up to an additional 10% as Single Unit Approvals (taking the total to 55% total)?

A: No – See Q above

Q: Is HUD’s issuance of the case # sufficient to show the lender that HUD’s concentration requirements have been met?

A: Yes

Q: Does the number of units in FHA Connection include FHA Approved Projects and SUA units?

A: FHA concentration includes both and cannot exceed 10% to be eligible for FHA SUA.

Litigation:

Q: The Form HUD 9991(Section 4.e.) does not specify the timeframe for “recent” litigation/mediation/arbitration. Is it implied that lenders need must honor the 12 month standard despite its omission from the form even if the matter was resolved?

A: Yes, the requirements in the 4000.1 HUD Handbook take precedent.

Commercial:

Q: For projects that contain commercial space what specific financial documents are required from the commercial entity? Must they be separate from the Condominium Association? If they are not-would this warrant a decline?

A: The HOA must evidence that the commercial space is self-sufficient. That is, the HOA dues cover the HOA costs of the commercial space per section 4.c. of page 3 of the Form HUD 9991.

Legal Condo Docs:

Q: Is documentation used for Single Unit approvals required to be uploaded to the system in some way? If not, when/how should the lender provide this documentation to HUD?

A: Yes, must be in file

Q: Are the condo legal docs, including decs & bylaws, being reviewed for leasing and deed restrictions?

A: Yes

Q: Bylaws if not received are they required?

A: No, only if something like individual insurance comes up, but we recommend asking for them at the same time you request the declaration/master deed.

Q: For condominiums that are professionally managed, are lenders required to obtain and review the management contract for the FHA SUA review?

A: No

Insurance:

Q: Are projects with co-insurance eligible for FHA SUAs?

A: Only if the policy has an Agreed Amount or Agreed Value endorsement. Replacement Cost Estimators are not sufficient for co-insurance waiver.

Q: If the management company is not covered under the Condominium association’s FIDELITY policy, but has a separate policy, is this acceptable?

A: Yes

Q: Is the management company required to have the same amount of fidelity coverage as the HOA?

A: Yes

Misc Questions:

Q: What are the differences between FHA SUA and HRAP/DELRAP?

A: FHA SUA is lender delegated for a single unit in a project that has 10% or less FHA Concentration and meets all FHA SUA guidelines. An HRAP/DELRAP is an approval of the entire project and allows for 50% FHA concentration.

Benefits of a SUA:

1. Much quicker review of a single unit with similar documentation requirements to an established and approved condo.  (See required doc list below)
2. If any exceptions are needed for things like high investor concentration, HUD can grant the exception as part of their review.  
   1. Please Note, standard HUD review timeframes are 4-7 business days.
3. All FHA condo complex approvals expire after 3 years, so a SUA is a fantastic solution.

Q: Over 55 communities – does it disqualify?

A: No, they are eligible as long as the project and unit meet all applicable requirements.

Q: Will the pricing engine have anything for SUA?

A: No pricing difference

Q: Are FHA SUA’s allowed in unapproved phases of new/under construction projects that have some but not all phases currently HRAP/DELRAP approved?

A: SUA must be Existing Construction. See table above for FHA definition of existing construction. The unapproved phases of a new construction project would not be eligible for FHA SUA.

Q: Does occupancy of Single Entity Owner units matter?

A: No

Q: Closing expectation? 45 days?

A: The process should be similar to a CPM/Full lender review for turn time. It depends upon how complete the project review submission is and the quality of the documents submitted.

Q: How do we determine if a building is in a Coastal Barrier Resources Area (CBRS)?

A: There is a section on the Flood Cert that would be checked if a building is in a CBRS.

Q: Located in Flood Zone is automatically not approved by HUD?

A: As long as it is not in a Coastal Barrier Resource System (CBRS), standard flood coverage per NFIP is acceptable. Check the flood cert for CBRS.

Q: If we look up a condo and it’s rejected can we still do it?

A: Yes, we can review rejected projects under SUA as long as FHA notes do not indicate anything that would be ineligible.

Q: Should an appraisal be ordered at the time the case number is ordered?

A: You must wait until your case number is removed from “Holds Tracking” and the actual case number is assigned.

Q: For TPO, do they order their own case numbers?

A: Whoever orders their case numbers for HRAP/DELRAP approved projects would still order the case number for the SUA’s.

Q: If a case number is obtained for a Single Unit Approval and then the lender subsequently decides to perform a DELRAP Review, can the same case number be used for the DELRAP Review?

A: No, the case number must be cancelled and a new case number will need to be requested once the project is approved DELRAP or HRAP.

Q: How long will it take HUD to finalize the case # once submitted by the lender?

A: HUD posted a 3 day SLA, however, they have informed us that they are currently taking 5-7 days. Do not resend when you think it may be taking too long. Be sure to put “SUA Holds Tracking” in your subject line. Be sure not to send anything more than the case number request and the Form HUD 9991. Submitting additional documentation could delay the process of obtaining a case number.