Download:
pdf |
pdfI. DOING BUSINESS WITH FHA
A. FHA Lenders and Mortgagees
5. Supplemental Mortgagee Authorities
management and staff will continue to exercise LI responsibilities for the
new Mortgagee.
c. Title I Manufactured Housing Loan Direct Endorsement Authority
RESERVED FOR FUTURE USE
This section is reserved for future use, and until such time, FHA-Approved Mortgagees
and Title I Manufactured Housing Mortgagees must continue to comply with all
applicable law and existing Handbooks, Mortgagee Letters, Notices and outstanding
guidance applicable to a Title I Manufactured Housing Mortgagee’s participation in FHA
programs.
d. Title II Multifamily Accelerated Processing Authority
Title II Multifamily Accelerated Processing (MAP) authority permits Mortgagees to
underwrite and close multifamily Mortgages for FHA insurance without FHA’s review prior
to closing. The Office of Multifamily Housing grants this authority. Details on this authority
are in the Multifamily Accelerated Processing (MAP) Guide 4430.G, which is available in
HUD’s Client Information and Policy System (HUDCLIPS).
e. Title II Direct Endorsement Lender Condominium Project Review and Approval
Process Authority
i. Scope of Authority
Approval to participate in the Direct Endorsement Lender Review and Approval Process
(DELRAP) permits a Mortgagee to review and approve Condominium Projects and
submit the Condominium Project for listing on FHA’s Approved Condominium Project
list.
Definitions
(1) Conditional DELRAP Authority
Conditional DELRAP Authority refers to the authority of a Mortgagee that has
provided notice to FHA of its intent to participate in DELRAP and requires the
Mortgagee to submit all Condominium Project Approvals to FHA for review.
(2) DELRAP Test Case Phase
The DELRAP Test Case Phase refers to the time period in which a Mortgagee
with Conditional DELRAP Authority is required to submit Condominium Project
Approvals to FHA for review.
Handbook 4000.1
Effective Date: 09/14/2015 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
37
I. DOING BUSINESS WITH FHA
A. FHA Lenders and Mortgagees
5. Supplemental Mortgagee Authorities
(3) Unconditional DELRAP Authority
Unconditional DELRAP Authority refers to the authority of a Mortgagee to
approve Condominium Projects in accordance with HUD requirements and
submit the Condominium Projects for listing on FHA’s Approved Condominium
Project list without any prior Condominium Project review by FHA.
Standard
To obtain Unconditional DELRAP Authority, the Mortgagee must successfully
complete the DELRAP Test Case Phase, which permits FHA to evaluate the
Mortgagee’s qualifications, experience, and expertise to review and approve
Condominium Projects.
ii. Eligibility Requirements
Standard
The Mortgagee must meet the following requirements to apply for and participate in
FHA’s DELRAP.
(1) FHA Title II DE Approval
A Mortgagee must have FHA approval as a Title II Unconditional Direct
Endorsement (DE) Mortgagee.
(2) Mortgagee Experience
The Mortgagee must have originated not less than 10 FHA Mortgages in
Condominium Projects approved by the Commissioner.
(3) Personnel Requirements
The Mortgagee must have at least one staff member with a minimum of one year
of experience underwriting Mortgages on Condominium Units and/or reviewing
Condominium Projects for FHA approval and must ensure that staff members
participating in the approval of Condominium Projects either:
meet the experience requirement; or
are supervised by staff that meet the one-year experience requirement.
(4) Quality Control Plan
The Mortgagee must have a QC Plan that includes specific provisions related to
DELRAP.
Handbook 4000.1
Effective Date: 09/14/2015 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
38
I. DOING BUSINESS WITH FHA
A. FHA Lenders and Mortgagees
5. Supplemental Mortgagee Authorities
Exception for Certain Mortgagees Created by Merger, Acquisition, or
Reorganization
Unconditional DELRAP Authority may be granted without the need for the DELRAP
Test Case Phase following a merger, acquisition, or reorganization, provided that the
following criteria are met:
The surviving FHA-approved Mortgagee or the FHA-approved Mortgagee
resulting in a new FHA Lender ID was granted Unconditional DELRAP
Authority prior to the merger, acquisition, or reorganization.
If both institutions have Unconditional DELRAP Authority, then the
management and staff of at least one of the Mortgagees involved with the
Mortgagee’s Unconditional DELRAP Authority prior to the merger,
acquisition, or reorganization must continue to exercise those responsibilities
for the new Mortgagee.
If only one institution has Unconditional DELRAP Authority, then the
management and staff involved with that Mortgagee’s Unconditional
DELRAP Authority prior to the merger, acquisition, or reorganization must
continue to exercise those responsibilities for the new Mortgagee.
iii. Application and Approval
First-Time Applicants
(1) Application
(a) Request to Enter DELRAP Test Case Phase
The Mortgagee must apply for Unconditional DELRAP Authority to the
Jurisdictional Homeownership Center (HOC) for the state where the
Mortgagee’s home office is located.
(b) Required Documentation
The Mortgagee must submit a letter signed by a Corporate Officer requesting
entry into the DELRAP Test Case Phase that:
specifies the Mortgagee’s home office 10-digit FHA Lender ID; and
certifies that the staff has met the eligibility requirements prior to
Conditional or Unconditional DELRAP Authority being granted.
(2) Notification
If the Mortgagee meets the requirements for DELRAP authority and submits the
required documentation, FHA will advise the Mortgagee in writing that they may
proceed with submitting Condominium Project Test Cases for review.
Handbook 4000.1
Effective Date: 09/14/2015 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
39
I. DOING BUSINESS WITH FHA
A. FHA Lenders and Mortgagees
5. Supplemental Mortgagee Authorities
(3) Test Case Process
Mortgagees with Conditional DELRAP Authority must review the Condominium
Project in accordance with the Condominium Project Approval requirements to
determine if the Condominium Project meets FHA approval requirements.
(4) Test Case Submission Requirements
The Mortgagee must submit all Test Cases to the Jurisdictional HOC. FHA will
review these Test Cases for compliance with FHA’s Condominium Project
Approval requirements.
(5) Approval Decision
(a) Approval of Unconditional DELRAP Authority
The Mortgagee must satisfactorily complete a minimum of five DELRAP
reviews with no more than one review being rated unacceptable. The
Jurisdictional HOC may require less than five DELRAP reviews and will
consider previous experience. The Condominium Project Test Cases must be
submitted within a period of 12 consecutive months following the date of
application, or such other extended time as determined by the HOC, in order
to be granted Unconditional DELRAP Authority. After the Mortgagee
successfully completes the required Condominium Project Test Cases, the
Mortgagee will be notified that they have been granted Unconditional
DELRAP Authority.
(b) Denial of Unconditional DELRAP Authority
The Mortgagee will be denied approval for Unconditional DELRAP Authority
if, at any time during the DELRAP Test Case Phase, FHA determines that the
Mortgagee’s submissions demonstrate a lack of knowledge of FHA
requirements, or FHA identifies unacceptable practices.
(i) Denial Decision
FHA will provide the Mortgagee with notice of a denial of Unconditional
DELRAP Authority that specifies the reason for the denial.
(ii) Denial Appeal
The applicant may submit an appeal of the denial decision to the
Jurisdictional HOC within 30 Days of the date of the denial.
Handbook 4000.1
Effective Date: 09/14/2015 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
40
I. DOING BUSINESS WITH FHA
A. FHA Lenders and Mortgagees
5. Supplemental Mortgagee Authorities
(iii)Informal Conference
If the denial is sustained, the applicant may submit a second appeal to the
Office of Single Family Program Development. The Director or designee
will conduct an informal conference with the Mortgagee and its counsel, if
any, no later than 60 Days from the date of the HOC appeal denial.
(iv) Determination
FHA will issue a determination following the informal conference stating
whether Unconditional DELRAP Authority is approved or denied.
(v) Reapplication Following Denial
If Unconditional DELRAP Authority is denied, the applicant is ineligible
to apply for DELRAP Authority for a period of 12 months after the date of
the original denial decision or the date of the informal conference
sustaining the denial decision.
Applications from Mortgagees Created by Merger, Acquisition or
Reorganization
(1) Standard
The Mortgagee must apply for Unconditional DELRAP Authority to the
Jurisdictional HOC for the state where the Mortgagee’s home office is located.
(2) Required Documentation
The Mortgagee must submit a letter signed by a Corporate Officer requesting
Unconditional DELRAP Authority that specifies:
the FHA-approved and non-approved Entities involved in the merger,
acquisition, or reorganization;
which Entity is the surviving Entity;
the effective date of the merger, acquisition, or reorganization; and
supporting documentation evidencing that the Mortgagee meets the
exception criteria.
Post-Approval Requirement
(1) FHAC Authorization
A Mortgagee approved for Conditional DELRAP Authority or Unconditional
DELRAP Authority must register and maintain all Mortgagee employees
designated to review/approve Condominium Projects in the Condominium
Reviewer Registry function in FHAC.
Handbook 4000.1
Effective Date: 09/14/2015 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
41
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
A. Title II Insured Housing Programs Forward Mortgages
1. Origination/Processing
(a) Standard
A condominium development is created by state or local law and is
characterized by fee-simple ownership of a unit, which is defined in the
condominium documents, together with common areas. The property interest
in these areas is both common and undivided on the part of all unit owners,
each of whom belongs to the HOA that typically maintains the Property and
collects assessments or dues from each unit owner.
A Condominium Project must be FHA approved before a Mortgage on an
individual Condominium Unit can be insured.
(b) Site Condominiums
A Site Condominium refers to:
a Condominium Project that consists entirely of single family detached
dwellings that have no shared garages, or any other attached buildings;
or
a Condominium Project that:
o consists of single family detached or horizontally attached
(townhouse) dwellings where the unit consists of the dwelling and
land;
o does not contain any Manufactured Housing units; and
o is encumbered by a declaration of condominium covenants or a
condominium form of ownership.
Manufactured Housing condominium units may not be processed as Site
Condominiums.
(5) Manufactured Housing
(a) Definition
Manufactured Housing is a Structure that is transportable in one or more
sections. It may be part of a Condominium Project, provided the project meets
applicable FHA requirements.
(b) Standard
To be eligible for FHA mortgage insurance as a Single Family Title II
Mortgage, all Manufactured Housing must:
be designed as a one-family dwelling;
have a floor area of not less than 400 square feet;
have the HUD Certification Label affixed or have obtained a letter of
label verification issued on behalf of HUD, evidencing the house was
constructed on or after June 15, 1976, in compliance with the Federal
Manufactured Home Construction and Safety Standards;
Handbook 4000.1
Effective Date: 09/14/2015 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
154
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
A. Title II Insured Housing Programs Forward Mortgages
8. Programs and Products - Condominiums
p. Condominiums
The Federal Housing Administration (FHA) will insure Mortgages on Condominium Units
(Units) in Approved Condominium Projects that have been approved under the HUD Review
and Approval Process (HRAP) or Direct Endorsement Lender Review and Approval Process
(DELRAP). In addition, FHA will insure Mortgages on Units approved in accordance with
the Single-Unit Approval section or that meet the definition and standards for a Site
Condominium.
i. Units Not Requiring Approval
Real Estate Owned Mortgages
HUD Real Estate Owned (REO) Mortgage transactions do not require Condominium
Project Approval or Single-Unit Approval. If the Unit is in a Condominium Project
that has an FHA Condo ID, the Mortgagee must enter the FHA Condo ID when the
FHA case number is requested.
Streamline Refinances
Streamline Refinances do not require Condominium Project Approval or Single-Unit
Approval. If the Unit is in a Condominium Project that has an FHA Condo ID, the
Mortgagee must enter the FHA Condo ID when the FHA case number is requested.
ii. Requirements for Units in Approved Condominium Projects
The Mortgagee must verify the following requirements for individual Units located in an
Approved Condominium Project or Legal Phase.
Condominium Project Approval Status
The Mortgagee must confirm the Condominium Project is on the list of FHAApproved Condominium Projects at the time of case number assignment and must
enter the FHA Condo ID in the Federal Housing Administration Connection (FHAC)
Case Assignment screen.
FHA Insurance Concentration
(1) Definition
FHA Insurance Concentration refers to the number of FHA-insured Mortgages
within a Condominium Project.
(2) Standard
FHA may suspend the issuance of new FHA case numbers for a Mortgage on a
Unit in a Condominium Project where the FHA Insurance Concentration is
greater than 50 percent of the total number of Units in the Condominium Project.
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
477
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
A. Title II Insured Housing Programs Forward Mortgages
8. Programs and Products - Condominiums
Owner Occupancy Percentage
(1) Definition
Owner Occupancy Percentage refers to the percentage of Units considered owneroccupied as shown in the calculation.
(2) Standard
The Mortgagee must determine the Approved Condominium Project has an
Owner Occupancy Percentage of at least 35 percent of the total number of Units.
The Mortgagee must report the Owner Occupancy Percentage in FHAC when the
functionality becomes available.
(3) Required Documentation
The Mortgagee must verify and document the Owner Occupancy Percentage.
(4) Calculation
For the sole purposes of calculating the Owner Occupancy Percentage, the
numerator of the calculation for a multi-phased Condominium Project includes
the total number of the following Units in the first declared Legal Phase and
cumulatively in subsequent Legal Phases, or for a single-phased Condominium
Project, all of the following Units in the numerator of the calculation:
any Unit that is occupied by the owner as his or her place of abode for any
portion of the calendar year and that is not rented for a majority of the
calendar year;
any Unit listed for sale, and not listed for rent, that was previously
occupied by the owner as his or her place of abode for any portion of the
calendar year and that is not rented for a majority of the calendar year; or
any Unit sold to an owner who intends to occupy the Unit as his or her
place of abode for any portion of the calendar year and has no intent to
rent the Unit for a majority of the calendar year.
For the sole purposes of calculating the Owner Occupancy Percentage, the
following Units are included in the denominator of the calculation for a:
multi-phased Condominium Project, the total number of Units in the first
declared Legal Phase and cumulatively in subsequent Legal Phases; or
single-phased Condominium Project, all Units.
A Unit owned by the builder/developer is not an owner-occupied Unit.
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
478
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
A. Title II Insured Housing Programs Forward Mortgages
8. Programs and Products - Condominiums
Financial Condition
(1) Units in Arrears
(a) Definition
Units in Arrears refer to each Unit with Condominium Association dues or
any special assessments that are more than 60 Days past due.
(b) Standard
The Mortgagee must verify that no more than 15 percent of the total Units are
Units in Arrears (does not include late fees or administrative expenses).
(c) Required Documentation
The Mortgagee must document the percentage of total Units that are Units in
Arrears.
(2) Individual Owner Concentration
(a) Definition
Individual Owner Concentration refers to the percentage of Units owned by a
single owner or Related Party.
Related Party includes any individual or Entity related to the Unit owner,
including but not limited to:
an individual related to the Unit owner by blood, marriage or operation
of law;
an individual serving as the Unit owners’ officer, director, or
employee; or
a Unit owner’s direct parent, subsidiary, or any related Entity with
which the Unit owner shares a common officer or director.
(b) Standard
The Mortgagee must determine that for Condominium Projects with 20 or
more Units, the Individual Owner Concentration is 10 percent or less.
The Mortgagee must determine that for Condominium Projects with fewer
than 20 Units, the Unit owner may not own more than one Unit. No Related
Party may own a Unit.
(c) Required Documentation
The Mortgagee must verify and document the Individual Owner
Concentration for the Condominium Project.
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
479
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
A. Title II Insured Housing Programs Forward Mortgages
8. Programs and Products - Condominiums
(d) Calculation
For the Individual Owner Concentration calculation:
on a multi-phased Condominium Project, the Individual Owner
Concentration is calculated based on the total number of Units in the
first declared Legal Phase and cumulatively on subsequent Legal
Phases; or
for a single-phased Condominium Project, all Units are used in the
denominator when calculating the Individual Owner Concentration,
except that unoccupied and unsold Units owned by a builder/developer
are excluded from the numerator and denominator in the Individual
Owner Concentration calculation.
The Mortgagee must use the total number of declared Units in the
Condominium Project for Complete Condominium Projects and Gut-Rehab to
calculate the Individual Owner Concentration.
Insurance
(1) Walls-In (HO-6)
(a) Definition
Walls-In Insurance refers to insurance that covers the interior of the Unit and
Personal Property inside the Unit.
(b) Standard
The Mortgagee must verify that the Borrower has obtained a Walls-In policy
(HO-6) if the master or blanket policy does not include interior unit coverage,
including replacement of interior improvements and betterment coverage to
insure improvements that the Borrower may have made to the Unit.
(c) Required Documentation
The Mortgagee must submit the certificate of insurance or complete copy of
the insurance policy that meets the requirements.
(2) Hazard Insurance
(a) Definition
Hazard Insurance refers to insurance coverage that compensates for physical
damage by fire, wind, natural occurrences, or other events outside of the
Condominium Project’s control.
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
480
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
A. Title II Insured Housing Programs Forward Mortgages
8. Programs and Products - Condominiums
(b) Standard
The Mortgagee must verify that the Condominium Association has a master or
blanket Hazard Insurance policy in place for the entire Approved
Condominium Project in an amount equal to at least 100 percent of the
insurable replacement cost of the Approved Condominium Project, including
the individual Units in the Approved Condominium Project.
The Mortgagee must verify that any policy with a coinsurance clause includes
an agreed amount endorsement or selection of the agreed value option.
The Mortgagee must verify that any pooled insurance policy satisfies the
insurance coverage standard for each Condominium Project insured under the
policy.
The insurance policies must list the Condominium Association as the named
insured, or, in the case of an affiliated Approved Condominium Project or
Condominium Association, the name of the affiliated Approved
Condominium Project or Condominium Association may be listed as a named
insured.
(c) Required Documentation
The Mortgagee must submit the certificate of insurance or complete copy of
the insurance policy that meets the requirements.
(3) Flood Insurance
(a) Definition
Flood Insurance refers to insurance that covers physical damage by floods.
(b) Standard
The Mortgagee must verify that Units in an Approved Condominium Project
located in a Special Flood Hazard Area (SFHA) continue to meet the Flood
Insurance requirements in the Condominium Project Approval section.
The insurance policies must list the Condominium Association as the named
insured, or, in the case of an affiliated Approved Condominium Project or
Condominium Association, the name of the affiliated Approved
Condominium Project or Condominium Association may be listed as a named
insured.
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
481
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
A. Title II Insured Housing Programs Forward Mortgages
8. Programs and Products - Condominiums
(c) Required Documentation
The Mortgagee must submit the required documentation in the Condominium
Project Approval section.
Leasehold Interest
(1) Definition
Leasehold Interest refers to real estate where the residential improvements are
located on land that is subject to long-term lease from the underlying fee owner,
creating a divided estate in the Property.
(2) Standard
The Mortgagee must determine if the Unit is owned under a Leasehold Interest
and complies with the leasehold guidance.
(3) Required Documentation
The Mortgagee must document verification of compliance and submit the
required documentation in the leasehold guidance.
New Construction
(1) Definitions
New Construction refers to Proposed Construction, Properties (or Condominium
Projects) Under Construction, and Properties Existing Less than One Year as
defined below:
Proposed Construction refers to a Property where no concrete or
permanent material has been placed. Digging of footing is not considered
permanent.
Under Construction refers to the period from the first placement of
permanent material to 100 percent completion with no Certificate of
Occupancy (CO) or equivalent.
Existing Less than One Year refers to a Property that is 100 percent
complete and has been completed less than one year from the date of
issuance of the CO or equivalent. The Property must have never been
occupied.
Complete Condominium Project refers to a Condominium Project consisting of
Units that are Existing Less than One Year and that are ready for occupancy,
including completion of all the Infrastructure of the Condominium Project, and
not subject to further rehabilitation or construction.
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
482
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
A. Title II Insured Housing Programs Forward Mortgages
8. Programs and Products - Condominiums
(2) Standard
For Complete Condominium Projects, the Mortgagee must comply with the
General Condominium Project Approval Requirements and the guidance in New
Construction.
(3) Required Documentation
The Mortgagee must submit required documentation for New Construction under
the guidance in New Construction.
Gut Rehabilitation
(1) Definition
Gut Rehabilitation (Gut Rehab) refers to the renovation of a Property down to the
shell of the structure, including the replacement of all Heating, Ventilation and
Air Conditioning (HVAC) and electrical components.
(2) Standard
For Gut Rehab conversion Condominium Projects, the Mortgagee must comply
with the General Condominium Project Approval Requirements and the New
Construction guidance.
(3) Required Documentation
The Mortgagee must submit required documentation for Gut Rehab under the
guidance in New Construction.
Manufactured Housing
(1) Definition
Manufactured Housing refers to Structures that are transportable in one or more
sections and meet the additional definition standards prescribed in Property
Acceptability Criteria for Manufactured Housing for Title II Insured Mortgages.
They may be part of an Approved Condominium Project, provided the
Condominium Project meets applicable FHA requirements.
A Manufactured Home refers to a single dwelling unit of Manufactured Housing.
(2) Standard
For a Manufactured Home, the Mortgagee must comply with the General
Condominium Project Approval Requirements and the guidance in Property
Types - Manufactured Housing.
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
483
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
A. Title II Insured Housing Programs Forward Mortgages
8. Programs and Products - Condominiums
(3) Required Documentation
The Mortgagee must submit the required documentation for Manufactured
Housing under the guidance in Property Types - Manufactured Housing.
iii. Single-Unit Approval
Single-Unit Approval refers to approval of a Unit in a Condominium Project that is not
an Approved Condominium Project.
The Mortgagee must verify the following requirements for Single-Unit Approval.
Condominium Project Approval Status
The Mortgagee must confirm the Condominium Project is not on the list of FHAApproved Condominium Projects at the time of case number assignment.
Borrower Eligibility
To be eligible for Single-Unit Approval, the Mortgagee must verify that the mortgage
application receives an Accept from TOTAL Mortgage Scorecard or has a maximum
Loan-to-Value (LTV) of 90 percent.
Property Eligibility
The Mortgagee must confirm that the Condominium Project:
has a CO that was issued at least one year ago or has been occupied;
has at least five Units;
is not a Manufactured Home;
does not have Ineligible Characteristics; and
is not located in an Approved Condominium Project or unapproved phase of a
Condominium Project with an approved Legal Phase.
Requirements for Eligible Properties
(1) FHA Insurance Concentration
(a) Definition
FHA Insurance Concentration refers to the number of FHA-insured
Mortgages within a Condominium Project.
(b) Standard
FHA may suspend the issuance of new FHA case numbers for a Mortgage on
a Unit in a Condominium Project when the FHA Insurance Concentration
exceeds 10 percent of the total number of Units in the Condominium Project
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
484
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
A. Title II Insured Housing Programs Forward Mortgages
8. Programs and Products - Condominiums
for Condominium Projects with 10 or more Units. For Condominium Projects
with less than 10 Units, the number of FHA-insured Mortgages cannot exceed
two.
(2) Owner Occupancy Percentage
(a) Definitions
Owner Occupancy Percentage refers to the percentage of Units considered
owner-occupied as shown in the calculation.
(b) Standard
The Mortgagee must determine that the Condominium Project has an Owner
Occupancy Percentage of at least 50 percent of the total number of Units.
The Mortgagee must report the Owner Occupancy Percentage in FHAC when
the functionality becomes available.
(c) Required Documentation
The Mortgagee must verify and document the Owner Occupancy Percentage.
(d) Calculation
For the sole purposes of calculating the Owner Occupancy Percentage, the
numerator of the calculation for a multi-phased Condominium Project
includes the total number of the following Units in the first declared Legal
Phase and cumulatively in subsequent Legal Phases, or for a single-phased
Condominium Project, all of the following Units are included in the numerator
of the calculation:
any Unit that is occupied by the owner as his or her place of abode for
any portion of the calendar year and that is not rented for a majority of
the calendar year;
any Unit listed for sale, and not listed for rent, that was previously
occupied by the owner as his or her place of abode for any portion of
the calendar year and that is not rented for a majority of the calendar
year; or
any Unit sold to an owner who intends to occupy the Unit as his or her
place of abode for any portion of the calendar year and has no intent to
rent the Unit for a majority of the calendar year.
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
485
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
A. Title II Insured Housing Programs Forward Mortgages
8. Programs and Products - Condominiums
For the sole purposes of calculating the Owner Occupancy Percentage, the
following units are included in the denominator of the calculation for a:
multi-phased Condominium Project, the total number of Units in the
first declared Legal Phase and cumulatively on subsequent Legal
Phases; or
single-phased Condominium Project, all Units.
A Unit owned by the builder/developer is not an owner-occupied Unit.
(3) Recorded Documents
(a) Definition
Recorded Documents refer to the Condominium Project’s legal, project and
governing documents that are required to operate legally as required by state
and local law.
(b) Standard
The Condominium Project’s Recorded Documents must be recorded in
accordance with applicable state and local law to ensure the Condominium
Project can be legally operated in the local jurisdiction.
(c) Required Documentation
The Mortgagee must submit evidence that the Recorded Documents have been
recorded.
(4) Transfer of Control
(a) Definitions
Transfer of Control refers to the shift of existing control over the
Condominium Association from the developer/builder to the Unit owners.
Control of the Condominium Association refers to the ability to directly or
indirectly control, direct, modify or veto any action of the Condominium
Association.
(b) Standard
The Mortgagee must verify Control of the Condominium Association has
been transferred to the Unit owners and the Covenants, Conditions, and
Restrictions (CC&R) have been recorded.
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
486
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
A. Title II Insured Housing Programs Forward Mortgages
8. Programs and Products - Condominiums
(c) Required Documentation
The Mortgagee must document the status of Transfer of Control and submit
the recorded CC&Rs.
(5) Financial Condition
(a) Financial Stability
(i) Definitions
Financial Stability refers to the ability of the Condominium Association to
meet the Condominium Project’s needs in the future through positive cash
flow and adequately funded reserves.
(ii) Standard
The Mortgagee must verify the Financial Stability of the Condominium
Project and that:
the Condominium Association maintains separate accounts for
operating and reserve funds;
a reserve account for capital expenditures and deferred
maintenance that is funded with at least 10 percent of the aggregate
monthly Unit assessments, unless a lower amount is deemed
sufficient based upon an acceptable reserve study; and
no more than 15 percent of the total Units are Units in Arrears
(does not include late fees or administrative expenses).
(iii) Required Documentation
The Mortgagee must document compliance of the Condominium Project
with the Financial Stability requirements.
(b) Financial Distress Event
(i) Definition
A Financial Distress Event refers to a Condominium Project or
builder/developer that has:
sought protection under bankruptcy laws;
been placed into receivership (mandated or voluntary);
been subject to foreclosure or any seizure of assets by creditors; or
offered a Deed-in-Lieu (DIL) of Foreclosure.
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
487
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
A. Title II Insured Housing Programs Forward Mortgages
8. Programs and Products - Condominiums
(ii) Standard
The Mortgagee must verify that a Condominium Project has not
experienced a Financial Distress Event within the last three years.
(iii) Required Documentation
The Mortgagee must document that the Condominium Project has not
experienced a Financial Distress Event within the last three years.
If applicable, the Mortgagee must submit a dated legal document
evidencing Resolution of Financial Distress Event and a signed and dated
explanation.
(c) Individual Owner Concentration
(i) Definition
Individual Owner Concentration refers to the percentage of Units owned
by a single owner or Related Party.
Related Party includes any individual or Entity related to the Unit owner,
including but not limited to:
an individual related to the Unit owner by blood, marriage or
operation of law;
an individual serving as the Unit owners’ officer, director, or
employee; or
Unit owner direct parent, subsidiary, or any related Entity with
which the Unit owner shares a common officer or director.
(ii) Standard
The Mortgagee must determine that for Condominium Projects with 20 or
more Units, the Individual Owner Concentration is 10 percent or less.
The Mortgagee must determine that for Condominium Projects with fewer
than 20 Units, the Unit owner may not own more than one Unit. No
Related Party may own a Unit.
(iii) Required Documentation
The Mortgagee must verify and document the Individual Owner
Concentration.
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
488
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
A. Title II Insured Housing Programs Forward Mortgages
8. Programs and Products - Condominiums
(iv) Calculation
For the Individual Owner Concentration calculation:
on a multi-phased Condominium Project, the Individual Owner
Concentration is calculated based on the total number of Units in
the first declared Legal Phase and cumulatively on subsequent
Legal Phases; or
for a single-phased Condominium Project, all Units are used in the
denominator when calculating the Individual Owner
Concentration, except that unoccupied and unsold Units owned by
a builder/developer are excluded from the numerator and
denominator in the Individual Owner Concentration calculation.
The Mortgagee must use the total number of declared Units in the
Condominium Project for Complete Condominium Projects and GutRehab to calculate the Individual Owner Concentration.
(d) Commercial/Non-Residential Financial Independence
(i) Definition
Commercial/Non-Residential Financial Independence refers to the ability
of the Residential Space and Commercial/Non-Residential Space of the
Condominium Project to be independently sustainable such that neither
portion of the Condominium Project is financially reliant on the other.
(ii) Standard
For projects with Commercial/Non-Residential Space, the Mortgagee must
verify there is Commercial/Non-Residential Financial Independence.
(iii) Required Documentation
The Mortgagee must document Commercial/Non-Residential Financial
Independence.
For Condominium Projects with Commercial/Non-Residential Space, the
Mortgagee must submit:
a current year budget approved by the board(s);
a year-to-date income and expense statement dated within 90 Days
if the prior year to date actuals are more than 90 Days old;
an income and expense statement for the previous year’s actual
year end results; and
a current balance sheet dated within 90 Days prior to the date of
submission.
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
489
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
A. Title II Insured Housing Programs Forward Mortgages
8. Programs and Products - Condominiums
(6) Insurance Coverage
The Condominium Project where the single Unit is located must be insured to
FHA standards as well as any applicable state and local condominium
requirements.
The insurance policies must list the Condominium Association as the named
insured, or in the case of an affiliated Condominium Project or Condominium
Association, the name of the affiliated Condominium Project or Condominium
Association may be listed as a named insured.
(a) Walls-In (HO-6)
(i) Definition
Walls-In Insurance refers to insurance that covers the interior of the Unit
and Personal Property inside the Unit.
(ii) Standard
The Mortgagee must verify that the Borrower has obtained a Walls-In
policy (HO-6) if the master or blanket policy does not include interior Unit
coverage, including replacement of interior improvements and betterment
coverage to insure improvements that the Borrower may have made to the
Unit.
(iii) Required Documentation
The Mortgagee must submit a certificate of insurance or complete copy of
the insurance policy that meets the requirements.
(b) Hazard Insurance
(i) Definition
Hazard Insurance refers to insurance coverage that compensates for
physical damage by fire, wind, natural occurrences, or other events outside
of the Condominium Project’s control.
(ii) Standard
The Mortgagee must verify that the Condominium Association has a
master or blanket Hazard Insurance policy in place for the entire
Condominium Project in an amount equal to at least 100 percent of the
insurable replacement cost of the Condominium Project, including the
individual Units in the Condominium Project.
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
490
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
A. Title II Insured Housing Programs Forward Mortgages
8. Programs and Products - Condominiums
The Mortgagee must verify that any policy with a coinsurance clause
includes an agreed amount endorsement or selection of the agreed value
option.
The Mortgagee must verify that any pooled insurance policy satisfies the
insurance coverage standard for each Condominium Project insured under
the policy.
(iii) Required Documentation
The Mortgagee must submit a certificate of insurance or complete copy of
the insurance policy that meets the requirements.
(c) Liability Insurance
(i) Definition
Liability Insurance refers to insurance that protects against legal claims.
(ii) Standard
The Mortgagee must verify that the Condominium Association maintains
comprehensive Liability Insurance for the entire Condominium Project,
including all common areas, elements, public ways, and all other areas that
are under its supervision, in the amount of at least $1 million for each
occurrence.
(iii) Required Documentation
The Mortgagee must submit a certificate of insurance or complete copy of
the insurance policy that meets the requirements.
(d) Fidelity Insurance
(i) Definition
Fidelity Insurance refers to insurance that protects the Condominium
Association against employee dishonesty, crime, or other fraudulent acts
conducted by one or more employees.
(ii) Standard
The Mortgagee must verify that for all Condominium Projects with more
than 20 Units, the Condominium Association maintains Fidelity Insurance
for all officers, directors, and employees of the Condominium Association
and all other persons handling or responsible for funds administered by the
Condominium Association.
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
491
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
A. Title II Insured Housing Programs Forward Mortgages
8. Programs and Products - Condominiums
The Mortgagee must verify that the insurance coverage is the greater of:
three months of aggregate assessments on all Units plus reserve
funds; or
the minimum amount required by state law.
If the Condominium Project engages a management company, the policy
or policies must demonstrate that they specifically meet the standard for
both the Condominium Association and the management company.
(iii) Required Documentation
The Mortgagee must submit the certificate of insurance or a complete
copy of the insurance policy from the Condominium Association and/or
from the management company that meets the requirements.
(e) Flood Insurance
(i) Definition
Flood Insurance refers to insurance that covers physical damage by floods.
(ii) Standard
The Mortgagee must verify that Units in a Condominium Project located
in a Special Flood Hazard Area meet the Flood Insurance requirements in
the Condominium Project Approval section.
(iii) Required Documentation
The Mortgagee must submit the required documentation in the
Condominium Project Approval Section.
(7) Projects in Coastal Barrier Resources System or Special Flood Hazard
Areas
(a) Projects in Coastal Barrier Resources System
If any part of the Condominium Project is located within the Coastal Barrier
Resources System (CBRS), the Condominium Project is not eligible for FHA
Single-Unit Approval.
(b) Special Flood Hazard Areas
If any portion of the Structures or equipment essential to the value of the
Condominium Project is located within an SFHA, then the Condominium
Project is not eligible for Condominium Project Approval, unless the
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
492
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
A. Title II Insured Housing Programs Forward Mortgages
8. Programs and Products - Condominiums
Condominium Project meets the Special Flood Hazard Areas requirements in
the Condominium Project Approval section.
(8) Commercial/Non-Residential Space
(a) Definitions
Commercial/Non-Residential Space refers to floor area allocated to:
retail and commercial square footage (excludes Live/Work Units);
multi-level parking garage square footage that is separate from multilevel parking garage square footage allocated to residential Unit
owners;
building common areas not reserved for the exclusive use of
residential Unit owners; and
any square footage that is owned by a private individual or Entity
outside of the Condominium Association.
Residential Space refers to floor area allocated to:
all Unit square footage;
all building common area square footage exclusively for the use of
residential Unit owners; and
all parking garage square footage allocated to residential Unit owners.
Parking lot square footage is not considered Residential or Commercial/NonResidential Space.
Total Floor Area refers to all Residential Space and Commercial/NonResidential Space.
(b) Standard
The Mortgagee must verify that the Condominium Project’s
Commercial/Non-Residential Space does not exceed 35 percent of the
Condominium Project’s Total Floor Area.
(c) Required Documentation
The Mortgagee must document the percentage of Commercial/NonResidential Space and submit the following documentation:
recorded Site Condominium plans; and
recorded CC&Rs.
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
493
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
A. Title II Insured Housing Programs Forward Mortgages
8. Programs and Products - Condominiums
(9) Live/Work Unit
(a) Definitions
A Live/Work Condominium Project refers to a Condominium Project that
allows space within the individual Unit to be used jointly for non-residential
and residential purposes.
A Live/Work Unit refers to a Unit in a Live/Work Condominium Project.
(b) Standard
The Mortgagee must verify that the Condominium Project governing
documents allow Live/Work arrangements.
The Mortgagee must verify that the individual Live/Work Unit does not
contain more than 49 percent Commercial/Non-Residential Space.
(c) Required Documentation
The Mortgagee must document compliance with the Live/Work requirements.
(10) Leasehold Interest
(a) Definition
Leasehold Interest refers to real estate where the residential improvements are
located on land that is subject to long-term lease from the underlying fee
owner, creating a divided estate in the Property.
(b) Standard
The Mortgagee must determine if Condominium Projects with Units or
Common Elements owned under a Leasehold Interest are eligible and meet
the following requirements:
The Condominium Association must be the lessee under the lease.
The lease of the Common Elements provides that a default of the
Condominium Association does not result in a disturbance of any
rights of the Unit owners.
The lease provides that the Mortgagee receives notice of any monetary
or Non-Monetary Default by the Condominium Association and is
given the right to cure any defaults on behalf of the Condominium
Association.
The lease provides for the payment of taxes and insurance related to
the land, in addition to those being paid for the improvements.
The Condominium Association must not be in default under any
provisions of the lease.
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
494
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
A. Title II Insured Housing Programs Forward Mortgages
8. Programs and Products - Condominiums
The lease does not include any default provisions that could result in
forfeiture or termination of the lease except for nonpayment of lease
rents.
The Condominium Project must comply with the Title II or Home
Equity Conversion Mortgage (HECM) Leasehold guidance as
applicable.
(c) Required Documentation
The Mortgagee must submit the lease and comply with the required
documentation in the Leasehold guidance.
(11) Litigation
(a) Definition
Litigation refers to a current or pending lawsuit or proceedings in a court,
arbitration, or mediation involving the Condominium Project or
Condominium Association, or those concluded within 12 months of the
application date. Litigation does not include foreclosure or actions to collect
past due assessments brought by the Condominium Association or
Condominium Project as plaintiff.
(b) Standard
The Mortgagee must verify that the Condominium Project or Condominium
Association is not subject to Litigation that relates to the safety, structural
soundness, habitability, or functional use of the Condominium Project.
The Mortgagee must verify that the Condominium Project or Condominium
Association is not subject to any other Litigation risk not covered by insurance
or that exceeds the amount of insurance coverage relating to the potential
losses for that matter.
(c) Required Documentation
The Mortgagee must document if the Condominium Project or Condominium
Association are subject to pending litigation or any other litigation risk.
iv. Site Condominium
Definition
A Site Condominium refers to:
a Condominium Project that consists entirely of single family detached
dwellings that have no shared garages, or any other attached buildings; or
a Condominium Project that:
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
495
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
A. Title II Insured Housing Programs Forward Mortgages
8. Programs and Products - Condominiums
o consists of single family detached or horizontally attached (townhouse)
dwellings where the unit consists of the dwelling and land;
o does not contain any Manufactured Housing units; and
o is encumbered by a declaration of condominium covenants or a
condominium form of ownership.
Standard
Site Condominiums must have insurance and maintenance costs that are the sole
responsibility of the Unit owner, excluding landscaping.
Site Condominiums do not require Condominium Project Approval or Single-Unit
Approval.
Required Documentation
The Mortgagee must submit the following documentation:
Condominium Rider;
appraisal completed on Fannie Mae Form 1073/Freddie Mac Form 465,
Individual Condominium Unit Appraisal Report, evidencing that all Units
satisfy the Site Condominium definition;
certificate of Hazard Insurance or complete copy of the insurance policy
evidencing coverage of the entire dwelling; and
if required under the Flood Insurance requirements in the Condominium
Project Approval Section, certificate of Flood Insurance or complete copy of
the insurance policy evidencing coverage of the entire dwelling.
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
496
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
C. Condominium Project Approval
1. Definitions
C. CONDOMINIUM PROJECT APPROVAL
Condominium Project Approval can be issued by FHA staff through the HUD Review and
Approval Process (HRAP) or by an FHA-approved Mortgagee through the Direct Endorsement
Lender Review and Approval Process (DELRAP). Mortgagees with Unconditional DELRAP
Authority are authorized to review condominium documentation, determine Condominium
Project eligibility, and certify to compliance with section 203(b) of the National Housing Act and
24 CFR Part 203 of FHA’s regulations as part of the Condominium Project Approval process.
Definitions
Condominium Project refers to a project in which one-family Dwelling Units are attached, semidetached, detached, or Manufactured Home units, and in which owners hold an undivided
interest in Common Elements.
Common Elements refer to the Condominium Project’s common areas and facilities including
underlying land and buildings, driveways, parking areas, elevators, outside hallways, recreation
and landscaped areas, and other elements described in the condominium declaration.
Condominium Unit (Unit) refers to real estate consisting of a one-family Dwelling Unit in a
Condominium Project.
Infrastructure refers to the Condominium Project’s streets, storm water management, water and
sewage systems, and utilities, along with the Condominium Project’s Common Elements and any
similar items, called for in the Condominium Project or Legal Phase.
Condominium Project Approval refers to the process to determine a Condominium Project’s
compliance with FHA’s Condominium Project Approval requirements.
Approved Condominium Project refers to a Condominium Project that meets FHA
Condominium Project Approval requirements as determined by review under DELRAP or
HRAP.
Condominium Association refers to the organization, regardless of its formal legal name, that
consists of homeowners within a Condominium Project for the purpose of managing the
financial and common-area assets.
Project Eligibility
a. Classifications and Ineligible Characteristics
i. Classifications
Condominium classifications eligible for Condominium Project Approval include:
Existing Construction;
Complete Condominium Project;
Conversions:
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
510
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
C. Condominium Project Approval
2. Project Eligibility
o Gut Rehab (completed)
o Non-Gut Rehab
Two- to Four-Unit Condominium Project;
Manufactured Housing; and
Leasehold Interest.
ii. Ineligible Characteristics
FHA will not approve Condominium Projects with the following characteristics:
cooperative ownership;
condominium hotel or condotel;
mandatory rental pooling agreements that require Unit owners to either rent their
Units or give a management firm control over the occupancy of the Units;
timeshare or segmented ownership projects;
multi-dwelling condominiums (more than one dwelling per Condominium Unit);
houseboat project;
continuing care facility;
Coastal Barrier Resources System location; or
subject to adverse determination for significant issues as identified by FHA.
b. Phasing
i. Definition
Phasing refers to Condominium Projects that are legally declared in separate stages by
amending and recording the governing documents.
Legal Phases refer to specific phases of a Condominium Project that allow additions to
the Condominium Project and are defined by state authority.
ii. Standard
Condominium Projects may be approved in stages as Legal Phases are completed;
however, all completed Legal Phases must be evaluated.
Each Legal Phase must be complete as demonstrated by the Certificate of Occupancy
(CO) or its equivalent prior to submission of a Legal Phase.
Legal Phases may be submitted for New Construction and Conversion (both Gut and
Non-Gut Rehabilitation) Condominium Projects.
The submitted Legal Phases must be independently sustainable without future planned
Legal Phases, as demonstrated by the budget and financial documentation, such that the
submitted Legal Phases of the Condominium Project will not be jeopardized by the
failure to complete additional Legal Phases.
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
511
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
C. Condominium Project Approval
2. Project Eligibility
Vertical Buildings
For vertical buildings, legal Phasing is acceptable if:
all Units in the phase are built out; and
at least a temporary CO, or its equivalent, has been obtained for the Units.
Detached and Semi-Detached Buildings
For a detached or semi-detached development, Phasing is acceptable if:
all Units in the phase are built out; and
at least a temporary CO, or its equivalent, has been obtained for the Units.
Required Documentation
Documentation of the verification that all Legal Phases have been submitted for
approval and are independently sustainable must be submitted along with:
the CO or its equivalent for each Unit in the Legal Phase; or
a temporary CO or its equivalent.
c. General Condominium Project Approval Requirements
These general requirements apply to all construction types, including Existing Construction
Condominium Projects. Additional or different standards may apply for certain construction
types.
To be eligible for Condominium Project Approval, the Condominium Project must:
be primarily residential in nature and not be intended for Rental for Transient or Hotel
Purposes;
consist only of one-family Dwelling Units;
be in full compliance with all applicable federal, state, and local laws with respect to
zoning, fair housing, and accessibility;
be complete and ready for occupancy; and
be reviewed and approved by the local jurisdiction.
In addition, the Condominium Project must also meet the following requirements in this
section.
i. Recorded Documents
Definition
Recorded Documents refer to the Condominium Project’s legal, project and
governing documents that are required to operate legally as required by state and
local law.
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
512
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
C. Condominium Project Approval
2. Project Eligibility
Standard
The Condominium Project’s Recorded Documents must be recorded in accordance
with applicable state and local law to ensure the Condominium Project meets the
legal and operational requirements in the local jurisdiction.
Required Documentation
Copies of Recorded Documents must be submitted.
ii. FHA Insurance Concentration
Definition
FHA Insurance Concentration refers to the number of FHA-insured Mortgages within
a Condominium Project.
Standard
FHA may suspend project eligibility of Condominium Projects where the FHA
Insurance Concentration is greater than 50 percent of the total number of Units in the
Condominium Project.
iii. Owner Occupancy Percentage
Definition
Owner Occupancy Percentage refers to the percentage of Units considered owneroccupied as shown in the calculation.
Standard
(1) Existing Construction
The acceptable level of Owner Occupancy Percentage is at least 50 percent of the
total number of Units.
(2) New Construction - Complete Condominium Projects
For Complete Condominium Projects and Gut Rehab conversions, the acceptable
level of Owner Occupancy Percentage is at least 30 percent of the total number of
declared Units in the Condominium Project.
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
513
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
C. Condominium Project Approval
2. Project Eligibility
Exception for Existing Construction
Existing Construction Condominium Projects that are greater than 12 months old,
with an Owner Occupancy Percentage of at least 35 percent and less than 50 percent
are eligible for approval with the following conditions:
applications must be submitted for processing and review under the HRAP
option; and
no more than 10 percent of the total Units are Units in Arrears (does not
include late fees or other administrative expenses).
Required Documentation
Documentation of the verification of the Owner Occupancy Percentage and any
exceptions must be submitted.
Calculation
For the sole purposes of calculating the Owner Occupancy Percentage, the numerator
of the calculation for a multi-phased Condominium Project includes the total number
of the following Units in the first declared Legal Phase and cumulatively in
subsequent Legal Phases, or for a single-phased Condominium Project, all of the
following Units in the numerator of the calculation:
any Unit that is occupied by the owner as his or her place of abode for any
portion of the calendar year and that is not rented for a majority of the
calendar year;
any Unit listed for sale, and not listed for rent, that was previously occupied
by the owner as his or her place of abode for any portion of the calendar year
and that is not rented for a majority of the calendar year; or
any Unit sold to an owner who intends to occupy the Unit as his or her place
of abode for any portion of the calendar year and has no intent to rent the Unit
for a majority of the calendar year.
For the sole purposes of calculating the Owner Occupancy Percentage, the following
Units are included in the denominator of the calculation for a:
multi-phased Condominium Project, the total number of Units in the first
declared Legal Phase and cumulatively on subsequent Legal Phases; or
single-phased Condominium Project, all Units.
A Unit owned by the builder/developer is not an owner-occupied Unit.
iv. Transfer of Control
Definition
Transfer of Control refers to the shift of existing control over the Condominium
Association from the developer/builder to the Unit owners.
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
514
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
C. Condominium Project Approval
2. Project Eligibility
Control of the Condominium Association refers to the ability to directly or indirectly
control, direct, modify or veto any action of the Condominium Association.
Standard
The legal documents must:
require Transfer of Control from the developer/builder to the Unit owners;
specify the conditions for Transfer of Control;
indicate the number of Units in the Condominium Project; and
be recorded, as applicable, in the CC&R, declaration, master deed,
condominium plat, and/or condominium site plans.
The developer/builder must relinquish control to the Condominium Association no
later than the earlier of the following:
120 Days after the date 75 percent of the Units in the Condominium Project
have been conveyed to Unit owners;
three years after completion of the Condominium Project as evidenced by the
first conveyance to a Unit owner; or
the time frame regarding Transfer of Control established under state or local
condominium laws, if applicable.
Any contracts entered into by the builder/developer prior to the Transfer of Control
and subsequently assigned to the Condominium Association, must give the right to
Condominium Association to terminate the contracts with no more than 90 Days’
notice.
Required Documentation
The following documentation must be submitted for Transfer of Control:
documentation of the verification of compliance with the Transfer of Control
requirements;
recorded CC&Rs, declaration, and/or master deed, and all amendments;
signed and adopted bylaws; and
articles of incorporation, articles of association, declaration of trust, or other
governing documents, if applicable and in accordance with state law.
v. Financial Stability and Controls
Definitions
Financial Stability refers to the ability of the Condominium Association to meet the
Condominium Project’s needs in the future through positive cash flow and adequately
funded reserves.
Financial Controls refer to the financial policies and procedures that a Condominium
Association has in place to protect its funds from fraud and mismanagement.
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
515
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
C. Condominium Project Approval
2. Project Eligibility
A Financial Distress Event refers to a Condominium Project or builder/developer that
has:
sought protection under bankruptcy laws;
been placed into receivership (mandated or voluntary);
been subject to foreclosure or any seizure of assets by creditors; or
offered a DIL of Foreclosure.
Resolution of Financial Distress Event refers to:
bankruptcy discharge;
termination of receivership;
issuance of foreclosure judgment; or
execution of DIL of Foreclosure.
Standard
(1) All Projects
To demonstrate Financial Stability, FHA requires Condominium Projects to have
financial documents that itemize and address income and expenditures that are
sufficient and pertinent to the Condominium Project including:
an operating income that demonstrates a stable income stream over the
past two years with decreases of no higher than 15 percent;
ability to cover the cost of insurance coverage and deductibles;
a reserve account for capital expenditures and deferred maintenance that is
funded with at least 10 percent of the aggregate monthly Unit assessments,
unless a lower amount is deemed sufficient based upon an acceptable
reserve study;
evidence that the budget provides for the periodic funding to maintain the
reserve account balance of at least 10 percent of the aggregate monthly
Unit assessments, unless a lower amount is deemed sufficient based upon
an acceptable reserve study;
evidence that no more than 15 percent of the total Units are Units in
Arrears (does not include late fees or other administrative expenses); and
financial records that are consistent with the application package,
including special assessments, loans, or other financial variations.
If a reserve study is required to justify a reserve account funded less than 10
percent, it must:
be 36 months old or less;
include a site visit;
demonstrate that the Condominium Project has adequate funded reserves
that provide financial protection for the Condominium Project equivalent
to the reserve requirements;
demonstrate that the Condominium Project’s funded reserves meet or
exceed the recommendations included in the reserve study; and
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
516
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
C. Condominium Project Approval
2. Project Eligibility
be prepared by an independent third party that has demonstrated
knowledge of and experience in completing reserve studies.
The Condominium Project demonstrates Financial Controls by:
maintaining separate accounts for operating and reserve funds;
requiring the Condominium Association’s management company to
maintain separate records and bank accounts for the Condominium
Association; and
restricting the management company from drawing checks on, or
transferring funds from, the reserve account of the Condominium
Association without approval from the Condominium Association.
(2) Financial Distress
A Condominium Project or builder/developer that has completed a Resolution of
Financial Distress Event within 12 months prior to the application date is not
eligible for initial approval or recertification. If the Resolution of Financial
Distress Event was completed more than 12 months but less than 36 months, the
application package must be submitted through HRAP for evaluation.
If there has been a Resolution of Financial Distress Event within the last 36
months, the Condominium Project or builder/developer must demonstrate the
cause has been resolved and a Financial Distress Event is unlikely to recur.
(3) Individual Owner Concentration
(a) Definition
Individual Owner Concentration refers to the percentage of Units owned by a
single owner or Related Party.
Related Party includes any individual or Entity related to the Unit owner,
including but not limited to:
an individual related to the Unit owner by blood, marriage or operation
of law;
an individual serving as the Unit owners’ officer, director, or employee;
or
a Unit owner, direct parent, subsidiary, or any related Entity with
which the Unit owner shares a common officer or director.
(b) Standard
For Condominium Projects with 20 or more Units, the Individual Owner
Concentration must be 10 percent or less.
For Condominium Projects with fewer than 20 Units, the Unit owner may not
own more than one Unit. No Related Party may own a Unit.
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
517
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
C. Condominium Project Approval
2. Project Eligibility
(c) Calculation
For the Individual Owner Concentration calculation:
on a multi-phased Condominium Project, the Individual Owner
Concentration is calculated based on the total number of Units in the
first declared Legal Phase and cumulatively on subsequent Legal
Phases; or
for a single-phased Condominium Project, all Units are used in the
denominator when calculating the Individual Owner Concentration,
except that unoccupied and unsold Units owned by a builder/developer
are excluded from the numerator and denominator in the Individual
Owner Concentration calculation.
The Mortgagee must use the total number of declared Units in the
Condominium Project for Complete Condominium Projects and Gut-Rehab to
calculate the Individual Owner Concentration.
(d) Required Documentation
Documentation of the verification of compliance with the requirements for
Financial Stability, Financial Controls, Financial Distress Event Resolution
and Individual Owner Concentration must be submitted.
(4) Phasing
For Condominium Projects that are subject to additional Phasing, the
Condominium Project must contain arrangements that guarantee the future
completion of all facilities and Common Elements.
The Condominium Project must demonstrate positive cash flow from the revenue
and expenditures of the completed Legal Phases and Common Elements.
(5) Projects with Commercial/Non-Residential Space
(a) Definition
Commercial/Non-Residential Financial Independence refers to the ability of
the Residential Space and Commercial/Non-Residential Space of the
Condominium Project to be independently sustainable such that neither
portion of the Condominium Project is financially reliant on the other.
(b) Standard
For projects with Commercial/Non-Residential Space, the Mortgagee must
verify there is Commercial/Non-Residential Financial Independence.
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
518
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
C. Condominium Project Approval
2. Project Eligibility
Required Documentation
The following documentation must be submitted:
documentation of the verification of Commercial/Non-Residential Space
Financial Independence and compliance with Phasing requirements;
current year’s budget approved by the Condominium Association board;
year-to-date income and expense statement dated within 90 Days if the prior
year-to-date actuals are more than 90 Days old;
income and expense statement for the previous year’s actual year end results;
current balance sheet dated within 90 Days prior to the date of submission;
if applicable, documentation supporting any loans or special assessments,
including information regarding the purpose, term, payment status, total
amount of the assessment, amount of the assessment per Unit and overall
impact on marketability and value of the Property;
if applicable, a dated legal document evidencing Resolution of Financial
Distress Event and a letter of explanation describing the cause of the event
and measures taken by the Condominium Association to prevent a future
Financial Distress Event; and
evidence of financial arrangements that guarantee the future completion of all
facilities and Common Elements, as applicable.
vi. Insurance Coverage
The Condominium Project must be insured to FHA standards as well as any applicable
state and local condominium requirements.
The insurance policies must list the Condominium Association as the named insured, or
in the case of an affiliated Condominium Project or Condominium Association, the name
of the affiliated Condominium Project or Condominium Association may be listed as a
named insured.
Hazard Insurance
(1) Definitions
Hazard Insurance refers to insurance coverage that compensates for physical
damage by fire, wind, natural occurrences, or other events outside of the
Condominium Project’s control.
(2) Standard
The Condominium Association must have a master or blanket Hazard Insurance
policy in place for the entire Condominium Project. The Condominium
Association’s master or blanket Hazard Insurance policy must be in an amount
equal to at least 100 percent of the insurable replacement cost of the
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
519
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
C. Condominium Project Approval
2. Project Eligibility
Condominium Project, including the individual Units in the Condominium
Project.
Any policy with a coinsurance clause must include an agreed amount
endorsement or selection of the agreed value option.
Any pooled insurance policy must satisfy the insurance coverage standard for
each Condominium Project insured under the policy.
(3) Required Documentation
The certificate of insurance or a complete copy of the insurance policy that meets
the requirements must be submitted.
Liability Insurance
(1) Definition
Liability Insurance refers to insurance that protects against legal claims.
(2) Standard
The Condominium Association must maintain comprehensive Liability Insurance
for the entire Condominium Project, including all Common Elements and areas,
public ways, and other areas that are under its supervision, in the amount of at
least $1 million for any single occurrence.
(3) Required Documentation
The certificate of insurance or a complete copy of the insurance policy that meets
the requirements must be submitted.
Fidelity Insurance
(1) Definition
Fidelity Insurance refers to insurance that protects the Condominium Association
against employee dishonesty, crime or other fraudulent acts conducted by one or
more employees.
(2) Standard
For all Condominium Projects with more than 20 Units, the Condominium
Association must maintain Fidelity Insurance for all officers, directors, and
employees of the Condominium Association and all other persons handling or
responsible for funds administered by the Condominium Association.
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
520
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
C. Condominium Project Approval
2. Project Eligibility
This insurance coverage must be the greater of:
three months of aggregate assessments on all Units plus reserve funds; or
the minimum amount required by state law.
If the Condominium Project engages a management company, it must have a
policy that covers both or separate policies. The policy or policies must
demonstrate that they specifically meet the standard for both the Condominium
Association and the management company.
Required Documentation
The certificate of insurance or a complete copy of the insurance policy from the
Condominium Association and/or from the management company that meets the
requirements must be submitted.
Flood Insurance (Existing Construction)
(1) Definition
Flood Insurance refers to insurance that covers physical damage by floods.
(2) Standard
The Condominium Association must have Flood Insurance in place for buildings
in the Condominium Project that are located within Special Flood Hazard Areas
(SFHA) including “A” or “V” zones, which are determined by the Federal
Emergency Management Agency (FEMA).
The Condominium Association must have Flood Insurance under the National
Flood Insurance Program (NFIP) for all Units in buildings that are located in an
SFHA.
Coverage must be equal to the replacement cost of the covered improvements or
the NFIP maximum per Unit multiplied by the number of Units, whichever is less.
(3) Required Documentation
The following documentation must be submitted:
documentation of the verification of compliance with the Flood Insurance
coverage requirements;
FEMA flood map with the Condominium Project location clearly marked;
if applicable, the certificate of insurance or a complete copy of the NFIP
policy; and
if applicable, the Letter of Map Amendment (LOMA), Letter of Map
Revision (LOMR), or elevation certificate.
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
521
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
C. Condominium Project Approval
2. Project Eligibility
vii. Projects in the Coastal Barrier Resources System and Special Flood Hazard
Areas
All Projects in the Coastal Barrier Resources System
If any part of the Condominium Project is located within the Coastal Barrier
Resources System (CBRS), the Condominium Project is not eligible for FHA project
approval.
Special Flood Hazard Areas
(1) Complete Condominium Project
If any portion of the Structures or equipment essential to the value of the
Condominium Project is located within an SFHA, then the Condominium Project
is not eligible for Condominium Project Approval, unless the Condominium
Project:
obtains a final LOMA or final LOMR from FEMA that removes the
Property from the SFHA; or
obtains a FEMA National Flood Insurance Program Elevation Certificate
(FEMA Form 086-0-33) prepared by a licensed engineer or surveyor. The
Elevation Certificate must document that the lowest floor, including the
basement of the residential building(s), and all related
improvements/equipment essential to the value of the Property is built at
or above the 100-year flood elevation in compliance with the NFIP
criteria, and insurance under the NFIP is obtained.
(2) Manufactured Housing
If any portion of the Structures or equipment essential to the value of the
Manufactured Housing Condominium Project for both new and existing
Manufactured Homes are located within an SFHA, the Property is not eligible for
FHA mortgage insurance unless the following is submitted:
a FEMA issued LOMA or LOMR that removes the Property from the
SFHA; or
FEMA Form 086-0-33 prepared by a licensed engineer or surveyor stating
that the finished grade beneath the Manufactured Home is at or above the
100-year return frequency flood elevation, and insurance under the NFIP
is obtained.
(3) Required Documentation
The following documentation must be submitted:
if applicable, FEMA LOMA;
if applicable, FEMA LOMR; or
if applicable, FEMA Form 086-0-33.
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
522
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
C. Condominium Project Approval
2. Project Eligibility
viii.
Commercial/Non-Residential Space
Definitions
Commercial/Non-Residential Space refers to floor area allocated to:
retail and commercial square footage (excludes Live/Work Units);
multi-level parking garage square footage that is separate from multi-level
parking garage square footage allocated to residential Unit owners;
building common areas not reserved for the exclusive use of residential Unit
owners; and
any square footage that is owned by a private individual or Entity outside of
the Condominium Association.
Residential Space refers to floor area allocated to:
all Unit square footage;
all building common area square footage exclusively for the use of residential
Unit owners; and
all parking garage square footage allocated to residential Unit owners.
Parking lot square footage is not considered Residential or Commercial/NonResidential Space.
Total Floor Area refers to all Residential Space and Commercial/Non-Residential
Space.
Standard
The Condominium Project’s Commercial/Non-Residential Space must not exceed 35
percent of the Condominium Project’s Total Floor Area.
Exception
The Condominium Project’s Commercial/Non-Residential Space may exceed 35
percent of the Condominium Project’s Total Floor Area up to a maximum of 49
percent if it is determined that the residential character of the Condominium Project is
maintained. To determine that the residential character is maintained, the economy
for the locality of the Condominium Project or specific to the Condominium Project
and the total number of residential Units in the Condominium Project must be
considered.
The following documentation must be reviewed and analyzed by the Mortgagee
under DELRAP to support its decision or submitted for HRAP:
an opinion from a certified residential appraiser that addresses market
acceptance of the Condominium Project as residential in character;
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
523
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
C. Condominium Project Approval
2. Project Eligibility
a current market study performed by an independent third party that addresses
factors relating to the economy for the locality of the Condominium Project or
specific to the Condominium Project; and
the total number of residential Units in the Condominium Project.
Required Documentation
The following documentation must be submitted for Commercial/Non-Residential
Space:
documentation of the verification of compliance with the requirements for the
Commercial/Non-Residential percentage and any exceptions;
budget and financials;
recorded condominium site plans;
CC&Rs; or
if applicable, exception documentation.
ix. Live/Work Units
Definitions
A Live/Work Condominium Project refers to a Condominium Project that allows
space within the individual Unit to be used jointly for non-residential and residential
purposes.
A Live/Work Unit refers to a Unit in a Live/Work Condominium Project.
Standard
The Condominium Project’s governing documents must allow Live/Work
arrangements.
The Mortgagee must verify the Condominium Project’s governing documents allow
Live/Work.
All individual Live/Work Units must not contain more than 49 percent
Commercial/Non-Residential Space.
Required Documentation
The following documentation must be submitted:
documentation of the verification that Live/Work requirements have been
met; and
recorded CC&Rs.
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
524
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
C. Condominium Project Approval
2. Project Eligibility
x. Leasehold Interest
Definition
Leasehold Interest refers to real estate where the residential improvements are located
on land that is subject to long-term lease from the underlying fee owner, creating a
divided estate in the Property.
Standard
Condominium Projects with Common Elements owned under a Leasehold Interest are
eligible if the Condominium Project meets the following requirements:
the Condominium Association must be the lessee under the lease;
the lease of the Common Elements provides that a default of the
Condominium Association does not result in a disturbance of any rights of the
Unit owners;
the lease provides that the Mortgagees receive notice of any monetary or NonMonetary Default by the Condominium Association and be given the right to
cure any defaults on behalf of the Condominium Association;
the lease provides for the payment of taxes and insurance related to the land,
in addition to those being paid for the improvements;
the Condominium Association must not be in default under any provisions of
the lease; and
the lease does not include any default provisions that could result in forfeiture
or termination of the lease except for nonpayment of the lease rents.
Required Documentation
The lease must be submitted.
xi. Additional Requirements
Management Agreement
(1) Definition
A Management Agreement refers to an agreement between a third-party company
and the Condominium Association to manage the Condominium Project.
(2) Standard
If the Condominium Association employs the services of a management
company, the Management Agreement must give the Condominium Association
the right to terminate the Management Agreement with no more than 90 Days’
notice.
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
525
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
C. Condominium Project Approval
2. Project Eligibility
(3) Required Documentation
The current, executed Management Agreement must be submitted.
Existing Contracts
(1) Definition
Existing Contracts refer to contracts executed prior to the Transfer of Control to
the Condominium Association.
(2) Standard
Any contracts entered into by the builder/developer prior to the Transfer of
Control and subsequently assigned to the Condominium Association, must give
the Condominium Association the right to terminate the contracts with no more
than 90 Days’ notice. This does not apply to ground leases or contracts in which
the Condominium Association or Unit owners are granted a possessory or
ownership interest in real estate.
(3) Required Documentation
Documentation of the verification of compliance with the requirements for
Existing Contracts must be submitted.
Recreational Leases/Easement
(1) Definitions
Recreational Leases refer to separate ownership of recreational facilities at a
Condominium Project with the owner leasing its use to the Unit owners.
An Easement refers to an interest in land owned by another person, consisting of
the right to use or control the land, or an area above or below it, for a specific
limited purpose.
(2) Standard
Condominium Projects with Recreational Leases/Easements are acceptable under
the following circumstances:
if the Recreational Lease or Easement holder is a nonprofit Entity under
the Control of the Condominium Association; or
if each Unit owner has the right to cancel the membership with no more
than 90 Days’ notice and without penalty.
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
526
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
C. Condominium Project Approval
2. Project Eligibility
(3) Required Documentation
The following documents must be submitted:
documentation of the verification of compliance with the requirements for
Recreational Leases, Easements or contracts must be submitted; and
Recreational Leases, Easements, or contracts for use of recreational
facilities.
Litigation
(1) Definition
Litigation refers to a current or pending lawsuit or proceedings in a court,
arbitration, or mediation involving the Condominium Project or Condominium
Association, or those concluded within 12 months of the application date.
Litigation does not include foreclosure or actions to collect past due assessments
brought by the Condominium Association or Condominium Project as plaintiff.
(2) Standard
The Condominium Project or Condominium Association must not be subject to
pending Litigation in which the project sponsor is named as a party that relates to
the safety, structural soundness, habitability, or functional use of the
Condominium Project.
The Condominium Project or Condominium Association must not be subject to
any other Litigation risk not covered by insurance or that exceeds the amount of
insurance coverage relating to the potential losses for that matter.
(3) Required Documentation
The following documents must be submitted:
documentation of the verification of compliance with the requirements for
pending litigation or any other Litigation risk;
a signed and dated explanation from the Condominium Association,
management company, or an attorney representing the Condominium
Association that includes at least the following information:
o reason(s) for the Litigation;
o risk of the Litigation;
o anticipated settlement/judgment date, if any;
o sufficiency of insurance coverage to pay out a settlement/judgment, if
applicable; and
o impact of the Litigation on the future solvency of the Condominium
Association; and
the following documents, which must be attached to the signed and dated
explanation, if applicable:
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
527
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
C. Condominium Project Approval
2. Project Eligibility
o complaint filed with the court, arbitrator, or mediator; and
o all engineering or expert reports commissioned by the Condominium
Association or their attorneys, which must include evidence of the
safety, structural soundness, habitability, or functional use of the
Condominium Project and evidence of the cost of the repair of any
construction defect and status of the repairs.
Legal Restrictions on Conveyance (Free Assumability)
(1) Definitions
Legal restrictions on conveyance have the same meaning as defined in 24 CFR §
203.41.
(2) Standard
The Condominium Project must not contain Units encumbered by restrictions on
conveyance in violation of the requirements contained in 24 CFR § 203.41,
subject to certain enumerated exceptions provided below. The Condominium
Project’s organizing documents may contain one or more of the following
provisions:
All leases must be in writing and subject to the declaration and bylaws of
the Condominium Project.
The Condominium Association may request and receive a copy of the
sublease or rental agreement.
The Condominium Association may request the name(s) of all tenants
including the tenants’ Family Members who will occupy the Unit.
Unit owners are prohibited from leasing their Units for an initial term of
less than 30 Days.
The Condominium Association may establish a maximum allowable lease
term.
The Condominium Association may establish a maximum number of
rental Units within the project; however, the percentage of rental Units
may not exceed the current FHA Condominium Project owner-occupancy
requirement.
The Condominium Association may not require that a prospective tenant
be approved by the Condominium Association and/or its agent(s),
including but not limited to meeting creditworthiness standards.
The Condominium Association may have the right of first refusal to
purchase or lease any Unit only if it does not violate discriminatory
conduct prohibitions under the Fair Housing Act regulations at 24 CFR
part 100. It is the responsibility of the submitter to address any questions
regarding eligibility issues with their attorney or the appropriate agency.
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
528
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
C. Condominium Project Approval
2. Project Eligibility
(a) Exceptions for Affordable Housing Units
Legal restrictions on conveyance for eligible government or nonprofit
affordable housing programs are acceptable if:
the government or eligible nonprofit program restriction meets the
exceptions defined in 24 CFR § 203.41(c) and (d); and
the affordable housing units are identified by recorded legal
documents, specifying the Units that are covered under the program.
In accordance with 24 CFR § 203.41 (d)(1)(ii), FHA considers a reasonable
share of appreciation to be at least 50 percent. HUD does not object to
affordable housing programs whereby the homeowner’s share of appreciation
is on a sliding scale beginning at zero, provided that within two years the
homeowner would be permitted to retain 50 percent of the appreciation. If the
program sets a maximum sales price restriction, the Borrower must be
permitted to retain 100 percent of the appreciation.
(b) Exceptions for Private Transfer Fees
Notwithstanding the policy of free assumability with no exceptions contained
in 24 CFR § 203.41, properties with private transfer fee covenants are
acceptable provided such covenants are Excepted Transfer Fee Covenants as
provided in 12 CFR § 1228.
(3) Required Documentation
The following documents must be submitted:
documentation of the verification of compliance with the requirements for
FHA’s leasehold, affordable housing unit, and private transfer fee
guidance; and
recorded legal documents.
d. Construction Types
i. New Construction
Definition
New Construction refers to Proposed Construction, Properties (or Condominium
Projects) Under Construction, and Properties Existing Less than One Year as defined
below:
Proposed Construction refers to a Property where no concrete or permanent
material has been placed. Digging of footing is not considered permanent.
Under Construction refers to the stage from the first placement of permanent
material to 100 percent completion with no CO or equivalent.
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
529
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
C. Condominium Project Approval
2. Project Eligibility
Existing Less than One Year refers to a Property that is 100 percent complete
and has been completed less than one year from the date of issuance of the CO
or equivalent. The Property must have never been occupied.
Complete Condominium Project refers to a Condominium Project consisting of Units
that are Existing Less than One Year and that are ready for occupancy, including
completion of all the Infrastructure of the Condominium Project, and not subject to
further rehabilitation or construction.
Complete Legal Phase refers to a Legal Phase in which all Units are built out and all
Units have a CO or the equivalent.
Standard
The Condominium Project, or Legal Phase, as applicable, must be either a Complete
Condominium Project or a Complete Legal Phase.
Form HUD-92541 must be signed and dated no more than 30 Days after the appraisal
was ordered and show any issues noted by the appraiser and builder/developer
proposed mitigation plans.
New Construction Additional Requirements
(1) Financial Condition
If no Units have closed in the Condominium Project, a proposed budget is
required.
All Financial Condition Required Documentation is required if any Unit has
closed, with the exception of the Previous Year Income and Expense Statement.
(2) Minimum Insurance Coverage
If no Units have closed in the Condominium Project, a builder’s policy is
acceptable in lieu of Hazard Insurance, Liability Insurance, and Fidelity
Insurance.
All minimum Insurance Coverage is required if any Unit has closed.
Required Documentation
The following documents must be submitted:
Form HUD-92541, Builder’s Certification of Plans, Specifications, & Site
signed and dated no more than 30 Days after the appraisal was ordered;
additional documentation demonstrating mitigation of any issues noted in
Form HUD-92541 including the State Licensed engineers’ (soil and
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
530
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
C. Condominium Project Approval
2. Project Eligibility
structural) reports, designs, and/or certifications to ensure the structural
soundness of the improvements and the health and safety of the occupants;
a copy of the builder’s policy or the required documentation in Insurance
Coverage;
a CO or its equivalent; and
photographs of each building.
ii. Newly Converted
A Condominium Project is considered newly converted if the Date of Conversion is
within 24 months of the time of Condominium Project submission.
Date of Conversion refers to the date that the legal documents were recorded.
Newly converted Condominium Projects can only be processed under the HRAP option.
Gut Rehabilitation Conversion
(1) Definition
Gut Rehabilitation (Gut Rehab) refers to the renovation of a Property down to the
shell of the structure, including the replacement of all Heating, Ventilation and
Air Conditioning (HVAC) and electrical components.
(2) Standard
Gut Rehabs must meet the general FHA Condominium Project Approval
Requirements and New Construction standards.
(3) Required Documentation
The following documents must be submitted:
documentation of the verification of compliance with the requirements for
Gut Rehab;
an engineering or architectural inspection, dated within 12 months,
evidencing all rehabilitation work/repairs have been completed; and
a CO or its equivalent.
Non-Gut Rehabilitation
(1) Definition
Non-Gut Rehabilitation (Non-Gut Rehab) refers to rehabilitation work that is not
structural and is limited to minor property repairs and improvements.
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
531
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
C. Condominium Project Approval
2. Project Eligibility
(2) Standards
Non-Gut Rehabs must meet the standards for Existing Construction.
A reserve study must be 36 months old or less and have been prepared by an
independent third party that has demonstrated knowledge of and experience in
completing reserve studies. The reserve study must include analysis of the NonGut Rehab.
All Non-Gut Rehab work/repairs must be completed.
(3) Required Documentation
The following documents must be submitted:
documentation of the verification of compliance with the requirements for
Non-Gut Rehab;
reserve study; and
evidence that all rehabilitation work/repairs have been completed.
e. Two- to Four-Unit Condominium Project
i. Definition
A Two- to Four-Unit Condominium Project refers to a Condominium Project that
comprises of at least two, but no more than four, one-family dwelling Units that are each
separately owned with separate legal descriptions.
ii. Standard
All general FHA Condominium Project Approval requirements are applicable except:
if state law does not require the creation of an annual budget or annual financial
statements, a signed and recorded memorandum of understanding may be
provided in lieu of the financial documents. The memorandum of understanding
must define the individual Unit owner’s responsibilities for
maintenance/repair/replacement of common areas including sidewalks,
driveways, and common walls (includes side by side or vertical type Units) and
must provide for a procedure for splitting any shared maintenance costs;
the project must have an Owner Occupancy Percentage of 75 percent owneroccupied; and
no Units in Arrears.
iii. Required Documentation
The following documents must be submitted:
documentation of the verification of compliance with the Two-to Four Unit
Condominium Project requirements;
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
532
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
C. Condominium Project Approval
3. Project Approval Submission
annual budget, financial statements or memorandum of understanding if
applicable; and
documented evidence that each Unit is separately owned with a separate legal
description.
f. Manufactured Home Condominium Projects
i. Definition
A Manufactured Home Condominium Project (MHCP) refers to a Condominium Project
that consists of two or more Manufactured Homes.
ii. Standard
To be eligible, MHCPs must:
be processed under the HRAP option; and
comply with the general FHA Condominium Project Approval requirements.
iii. Required Documentation
Documentation of the verification of compliance with requirements for MHCPs must be
submitted.
Project Approval Submission
To be eligible for Condominium Project Approval, the application must establish that the
Condominium Project meets the requirements listed in the Project Eligibility section and
complies with state and local law.
a. Condominium Project Approval
There are three types of review processes:
Full Review;
Recertification Review; and
Phasing Review.
i. Definitions
Full Review refers to the verification and analysis of all required Condominium Project
Approval documentation.
Recertification Review refers to the verification and analysis of updated Condominium
Project Approval documentation.
Phasing Review refers to the review of an additional Legal Phase of a previously
Approved Condominium Project.
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
533
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
C. Condominium Project Approval
3. Project Approval Submission
ii. Standard
The application must indicate the review type as a Full, Recertification or Phasing
Review.
Full Review
Full Review is required for a Condominium Project that has never been approved by
FHA, or that has been previously approved, but the Condominium Project Approval
has been expired for more than six months.
All required documentation must be submitted as specified in Condominium Project
Approval.
Recertification Review
Recertification Review is performed no earlier than six months prior to the Approved
Condominium Project expiration date or no later than six months after the Approved
Condominium Project expiration date.
If not submitted within the stated time frames, the Condominium Project is not
eligible for recertification but must re-apply for Full Review.
All required documentation must be submitted as specified in Condominium Project
Approval, except the following documents:
recorded CC&Rs, declaration, and/or master deed, and all amendments;
recorded plat map or condominium site plans;
signed and adopted bylaws; and
articles of incorporation, articles of association, declaration of trust, or other
governing documents, if applicable and as required by state law.
If amendments have been made to the foregoing documents, they must be submitted.
Phasing
All required documentation must be submitted as specified in Phasing.
b. HUD Review and Approval Process
i. Definition
HUD Review and Approval Process (HRAP) refers to the submission of project
applications to FHA for approval.
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
534
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
C. Condominium Project Approval
3. Project Approval Submission
ii. Standard
HRAP may be used for Full Review, Recertification Review, or Phasing Review. HRAP
must be used for newly converted Condominium Projects, MHCPs or any Condominium
Projects that have completed a Resolution of Financial Distress Event within the past 36
months.
iii. Eligible Submission Sources
Requests for Condominium Project approval must be submitted to the Jurisdictional
Homeownership Center (HOC) by one of the following:
Mortgagee;
builder;
developer;
Condominium Association;
management company;
project consultant; or
attorney acting as an agent for the developer/builder, Condominium Association
or management company.
FHA will not pay for any fees associated with the Condominium Project Approval
process.
iv. Submission Process
The application package must be submitted to the Jurisdictional HOC as a single Portable
Document Format (PDF) file on a CD-ROM or USB flash drive. Incomplete packages
will not be processed.
All application packages must be submitted in English. If the original document was
drafted in a language other than English, the original may be submitted accompanied by
an English translation.
The Condominium Project Approval application must be arranged in the stacking order
as presented in the chart below.
#
1
2
3
4
5
6
7
8
Condominium Project Approval Stacking Order
Documentation
Cover Letter
Legal Documents
Financial Documents
Contracts
Insurance
Flood Insurance and Related Documentation
Special Flood Hazard Area
Commercial/Non-Residential
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
535
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
C. Condominium Project Approval
3. Project Approval Submission
#
9
10
11
Condominium Project Approval Stacking Order
Documentation
Live/Work
Litigation
Other Required Documents
c. Direct Endorsement Lender Review and Approval Process
i. Definition
Direct Endorsement Lender Review and Approval Process (DELRAP) refers to the
review of a Condominium Project by a Mortgagee that has been granted DELRAP
authority.
ii. Standard
DELRAP may be used for the Full Review, Recertification Review, or Phasing Review.
The Recertification Review or Phasing Review must be completed by the same
Mortgagee that previously approved the Condominium Project. DELRAP may not be
used for MHCPs, newly converted Condominium Projects or any project that has
completed a Resolution of Financial Distress Event within the past 36 months.
If the DELRAP review indicates that the Condominium Project is ineligible, the
Mortgagee must complete the review and enter the denial decision and data into FHAC.
If the Mortgagee starts a review for a Condominium Project, the Mortgagee must
complete review.
A Mortgagee with DELRAP authority may submit a Condominium Project for approval
under HRAP.
iii. Submission Process
FHAC is the system used to record, list and track all data for Condominium Projects that
have been processed. FHAC is used for data entry, processing and reporting.
Mortgagees must use FHAC to:
determine the existing approval status of a Condominium Project;
enter the Condominium Project information;
assign the approval status after the Condominium Project has been reviewed; and
upload required Condominium Project documents in a PDF.
The Mortgagee must retain all documentation related to the Condominium Project’s
DELRAP review for a period of seven years and must provide the Condominium Project
information and documentation to HUD/FHA upon request.
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
536
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
C. Condominium Project Approval
3. Project Approval Submission
Mortgagees with Conditional DELRAP Authority must also follow the guidance in
Conditional DELRAP Authority.
d. Reconsideration of Rejected or Withdrawn Condominium Projects
If the Condominium Project was rejected or withdrawn under HRAP within the previous 12
months, FHA will reconsider the Condominium Project upon submission of corrected or
updated documentation. If the Condominium Project was rejected or withdrawn under HRAP
more than 12 months ago, a Full Review is required.
If the Condominium Project was rejected under DELRAP, a Full Review is required under
HRAP.
If the Condominium Project was subject to adverse determination for significant issues as
identified by FHA, (link to new FHA website identifying Condominium Projects that have
been reviewed and are not eligible) a Full Review is required under HRAP.
Handbook 4000.1
Effective Date: 10/15/2019 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
537
II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
D. Appraiser and Property Requirements for Title II Forward and Reverse Mortgages
6. Condominium Projects
Condominium Projects
a. Definition
Condominium Project refers to a project in which one-family Dwelling Units are either
attached, semi-detached, or detached, or are Manufactured Home units, and in which owners
hold an undivided interest in Common Elements.
Common Elements refer to the Condominium Project’s common areas and facilities
including underlying land and buildings, driveways, parking areas, elevators, outside
hallways, recreation and landscaped areas, and other elements described in the condominium
declaration.
b. Standard
A Condominium Project must be on the list of FHA-approved condominiums unless it meets
the definition for a Site Condominium.
c. Required Analysis and Reporting
The Appraiser must check if the Condominium Project is on the list of FHA-approved
condominiums.
d. Site Condominium
i. Definition
A Site Condominium refers to:
a Condominium Project that consists entirely of single family detached dwellings
that have no shared garages, or any other attached buildings; or
a Condominium Project that:
o consists of single family detached or horizontally attached (townhouse)
dwellings where the unit consists of the dwelling and land;
o does not contain any Manufactured Housing units; and
o is encumbered by a declaration of condominium covenants or a condominium
form of ownership.
ii. Required Analysis and Reporting
The Appraiser must report the appraisal on Fannie Mae Form 1073/Freddie Mac Form
465, Individual Condominium Unit Appraisal Report.
Handbook 4000.1
Effective Date: 09/14/2015 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
590
V. QUALITY CONTROL, OVERSIGHT AND COMPLIANCE
A. Quality Control of Lenders and Mortgagees
1. Quality Control Program Overview
A. QUALITY CONTROL OF LENDERS AND MORTGAGEES
Quality Control Program Overview
a. Purpose of Quality Control Program
Quality Control (QC) Programs must be designed to:
ensure compliance with FHA and Mortgagee policy and guidelines related to FHA
Loan Administration;
protect FHA and the Mortgagee from unacceptable risk;
guard against errors, omissions, negligence, and fraud from those involved in the
Mortgagee’s Loan Administration;
determine the root cause of any deficiencies and identify potential internal and
external control weaknesses;
alert Mortgagee management to patterns of deficiencies with respect to mortgage
process and personnel;
ensure timely and appropriate corrective action;
ensure the existence of required documentation (e.g., credit, loan, and appraisal
information) that is the basis of underwriting and servicing decisions;
ensure Mortgages are secured by properties with values sufficient to support the
Mortgage; and
ensure compliance with fair lending laws, including the Fair Housing Act and the
Equal Credit Opportunity Act (ECOA).
b. Definitions
i. Quality Control Program
A Quality Control (QC) Program is the process and written procedures through which the
Mortgagee seeks to ensure that FHA operations and Loan Administration are in
compliance with all applicable requirements.
ii. Quality Control Plan
A Quality Control (QC) Plan is a written plan that sets forth a Mortgagee’s procedures
for ensuring quality control. A QC Plan is the written element of a Mortgagee’s QC
Program.
iii. Loan Administration
Loan Administration refers to all aspects of the FHA mortgage lifecycle, including
origination, underwriting, closing, endorsement, and servicing of FHA-insured
Mortgages that are governed by FHA policies and procedures. Loan Administration
includes the approval of a Condominium Project.
Handbook 4000.1
Effective Date: 09/14/2015 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
969
V. QUALITY CONTROL, OVERSIGHT AND COMPLIANCE
A. Quality Control of Lenders and Mortgagees
1. Quality Control Program Overview
c. Standard
The Mortgagee must adopt and implement a QC Program that fully complies with the
requirements of this SF Handbook, and, where applicable, the additional Multifamily QC
requirements outlined in the Multifamily Accelerated Processing (MAP) Guide, 4430.G. The
Mortgagee must maintain and update its QC Program as needed to ensure it is fully
compliant with all applicable FHA requirements at all times.
The QC Program must cover the lifecycle of an FHA-insured Mortgage, including
origination, underwriting, closing, endorsement, and servicing functions that are conducted
by the Mortgagee.
The QC Program must cover all policies and procedures, whether performed by the
Mortgagee or outsourced to a contractor, to ensure full compliance with FHA requirements
for Loan Administration.
The QC Program must provide the Mortgagee’s management with information sufficient to
adequately monitor and oversee the Mortgagee’s compliance, and measure performance as it
relates to the Mortgagee’s FHA mortgage activity.
i. Exception for Multifamily Mortgagees
The following QC Program requirements do not apply to Mortgagees with an Originate
Multifamily, Service Multifamily, or Service/Originate Multifamily only authority. For
Mortgagees with Originate Single Family/Multifamily, Service Single
Family/Multifamily, or Service/Originate Single Family/Multifamily authority, these QC
Program requirements do not apply to its Multifamily operations.
V.A.2.b.iii(A) Rejected Mortgage Applications
V.A.2.b.iv Escrow Funds
V.A.2.b.vi Timely and Accurate Submission for Insurance
V.A.2.d.iv(F) Method of Reporting
V.A.3.a.i Time Frame for Selection and Review
V.A.3.a.iii Sample Size Standard
V.A.3.a.iv Sample Composition Standard
V.A.3.b Loan Sample Risk Assessment
V.A.3.c Origination and Underwriting Loan File Compliance Review
V.A.3.d Quality Control Reviews of Specialized Mortgage Programs
V.A.3.e Servicing Loan File Compliance Review
V.A.3.f.ii Servicing Reviews
V.A.4 Data Integrity
V.B Quality Control of Other Participants
V.C.2.a Title I Lender Monitoring Reviews
V.C.2.c Servicer Tier Ranking System II
V.C.3 Loan Level Monitoring
Handbook 4000.1
Effective Date: 09/14/2015 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
970
V. QUALITY CONTROL, OVERSIGHT AND COMPLIANCE
A. Quality Control of Lenders and Mortgagees
2. Institutional Quality Control Program Requirements
V.D Monitoring of Other Participants
V.E.3 Program Office Actions and Sanctions
V.E.5.e Specific Program Participants
d. Required Documentation
The Mortgagee must document the existence of its QC Program and evidence of its
implementation, including written procedures, QC reports, and corrective action plans.
i. Time Frame for Retention
The Mortgagee must retain all QC review results, including all selection criteria, review
documentation, Findings, and actions taken to mitigate Findings, for a period of two
years from the initial QC review, or from the last action taken to mitigate Findings,
whichever is later.
ii. Production of Documents
The Mortgagee must make all documentation relating to its QC Program available to
FHA at any time upon request.
Institutional Quality Control Program Requirements
a. Who May Perform Quality Control
The Mortgagee may use employees or contractors to perform QC functions in accordance
with the following requirements.
i. Employees [Text was deleted in this section.]
The Mortgagee must ensure that employees who perform QC Program functions are, at
all times, independent of all Loan Administration processes and do not directly
participate in any of the Loan Administration processes represented in the QC Plan.
ii. Contractors
The Mortgagee may contract with outside vendors to perform QC functions if:
the Mortgagee assumes full responsibility for the contractor’s conduct of QC
reviews in compliance with FHA requirements;
the Mortgagee and the contractor have a valid contractual agreement in place that
specifies the roles and responsibilities of each party; and
the Mortgagee acknowledges that the existence of such contract for the provision
of QC services does not satisfy the Mortgagee’s obligation to have a written QC
Plan that fully complies with FHA requirements.
Handbook 4000.1
Effective Date: 09/14/2015 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
971
V. QUALITY CONTROL, OVERSIGHT AND COMPLIANCE
A. Quality Control of Lenders and Mortgagees
3. Loan Level Quality Control Program Requirements
was not required to order a new appraisal for a property financed with an FHAinsured Mortgage.
Field reviews do not have to be performed for pre-closing reviews.
(3) Required Documentation
The Mortgagee must retain all QC review results, including all selection criteria,
review documentation, Findings, and actions taken to mitigate Findings.
d. Quality Control Reviews of Specialized Mortgage Programs
i. Standard
QC reviews of specialized mortgage programs (e.g., 203(k), Home Equity Conversion
Mortgages (HECM), Energy Efficient Mortgages (EEM), Condominiums, Condominium
Project Approvals, etc.) must monitor compliance with FHA requirements specific to
those programs.
ii. Required Documentation
The Mortgagee must retain all QC review results, including all selection criteria, review
documentation, Findings, and actions taken to mitigate Findings.
e. Servicing Loan File Compliance Review
i. Minimum Requirements
Mortgagees must review all aspects of their servicing operations, including a review of
subserviced Mortgages and activities as they relate to FHA-insured Mortgages, to
guarantee that all FHA servicing and loss mitigation requirements are being met. At a
minimum, Mortgagees must include the following elements in their QC review to ensure
they meet the requirements outlined in the Servicing and Loss Mitigation and Claims and
Disposition sections of this SF Handbook:
servicing records
document retention and legibility
non-discrimination policies
Borrower requests, complaints, and escalated cases
fees
transfer of servicing notification and records
documentation of purchased or acquired Mortgages
mortgage record changes
escrow account functions
force-placed insurance
prepayments
MIP
Handbook 4000.1
Effective Date: 09/14/2015 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
987
V. QUALITY CONTROL, OVERSIGHT AND COMPLIANCE
B. Quality Control of Other Participants
2. Nonprofits and Governmental Entities
the Doing Business with FHA – Nonprofits section of this SF Handbook. The QC Plan
must include the nonprofit’s reports, any reports of fraud, corrective action plans, and
review procedures.
The nonprofit must maintain and update its QC Plan as needed to ensure it remains fully
compliant with all applicable FHA requirements.
iii. Required Documentation
The nonprofit must retain all QC review results, including all selection criteria, review
documentation, Findings, and corrective actions taken to mitigate or resolve Findings.
This documentation must be maintained for a minimum of three years. The nonprofit
must make all documentation relating to its QC Plan available to FHA at any time upon
request.
b. Quality Control Plan Findings and Corrective Action
i. Records of Quality Control Findings
The nonprofit must maintain records of QC Findings and actions taken, periodic reports,
and review procedures. Reports must identify areas of deficiency, including the agency’s
policies and procedures, errors and omissions, and unacceptable patterns or trends. All
violations of law or regulation, any known false statement, or fraud or program abuse
must be reported to FHA, the Office of Inspector General (OIG), and the appropriate
federal, state or local law enforcement agency.
ii. Corrective Action
The nonprofit must maintain a copy of the corrective actions taken when Findings are
discovered. Findings that result in changes to managerial staff or expose any deviance to
previously approved processes must be brought to the attention of FHA upon discovery.
c. Fraud, Misrepresentation, and Other Findings
i. Standard
The nonprofit must take prompt, effective, and corrective measures to investigate and
document suspected instances of fraud, misrepresentation, and other related Findings.
ii. Internal Reporting to Senior Management
The nonprofit’s QC Plan must contain a process for its QC staff to promptly report and
document Findings delivered to senior management. Nonprofit staff must report Findings
to senior management no more than 15 business days from the date of discovery.
Handbook 4000.1
Effective Date: 09/14/2015 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
991
V. QUALITY CONTROL, OVERSIGHT AND COMPLIANCE
C. Mortgagee Monitoring
2. Institutional Mortgagee Monitoring
Time Frame
Mortgagees receiving a grade of “F”/Tier 4 may appeal their final score no later than
30 Days after the issue date of the final fiscal year grade.
Process
The Mortgagee must submit the appeal to HUD’s Deputy Assistant Secretary for
Single Family Housing or their designee and request an informal HUD conference.
x. Increased Incentives
HUD will use TRS II to determine those Mortgagees earning “A”/Tier 1 scores and may
therefore qualify for increased loss mitigation financial incentives for the following
calendar year.
d. DELRAP Mortgagee Monitoring Reviews
i. Types of DELRAP Mortgagee Monitoring Reviews
Periodic Review
A Periodic Review refers to the monitoring of the work performed by the DELRAP
Mortgagee and its DELRAP staff reviewer to ensure compliance with FHA
requirements.
Post-Action Review
A Post-Action Review refers to evaluations of submitted Unconditional DELRAP
Authority packages.
ii. Production of Files and Records
A DELRAP Mortgagee must provide all information and files requested by FHA to assist
in a Periodic Review or Post-Action Review.
iii. Scope
Condominium Project approvals, denials or recertifications may be selected for review.
iv. Findings
At the conclusion of a Periodic Review or Post-Action Review, FHA will discuss the
results with the DELRAP Mortgagee. FHA will provide the DELRAP Mortgagee with
notification of the completion of the review and, if applicable, specify the remedies and
response that is required from the DELRAP Mortgagee.
Handbook 4000.1
Effective Date: 09/14/2015 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
997
V. QUALITY CONTROL, OVERSIGHT AND COMPLIANCE
E. Enforcement
3. Program Office Actions and Sanctions
(a) Time Frame
Test Case Phase review status continues until the Mortgagee corrects its
underwriting deficiencies or until the Mortgagee’s DE approval is withdrawn.
(b) Cause
A return to Test Case Phase review status may result from, but is not limited
to, the following circumstances:
final Title II loan review results that demonstrate a Mortgagee’s failure
to follow FHA requirements;
a pattern of fraud identified by FHA, of which the Mortgagee was
aware, or should have been aware; or
the results of on-site or other reviews of the Mortgagee.
(6) Additional Elements
FHA may impose additional elements of probation reasonably related to the
Mortgagee’s underlying violations that allow FHA to monitor the Mortgagee and
assist FHA with bringing the Mortgagee into compliance with FHA regulations.
Notice
FHA will send a written notice of probation to the Mortgagee. The probation notice
will list the violations that precipitated the probation and explain the elements being
applied to the Mortgagee’s probation.
Effective Date
Probation is effective immediately upon the receipt of the notice of probation by the
Mortgagee.
ii. Withdrawal of Title II Direct Endorsement Authority
FHA may withdraw the DE authority of any Mortgagee that demonstrates a pattern or
practice of failing to comply with FHA underwriting guidelines or program requirements.
This action is separate and apart from the termination action described in the Credit
Watch Termination section.
Scope
FHA may terminate a Mortgagee’s approval to participate in the DE Program in a
particular jurisdiction or on a nationwide basis.
Handbook 4000.1
Effective Date: 09/14/2015 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
1003
V. QUALITY CONTROL, OVERSIGHT AND COMPLIANCE
E. Enforcement
3. Program Office Actions and Sanctions
Notice and Appeal
FHA will provide the Mortgagee with written notice of the proposed withdrawal that
identifies the grounds for the action and advises the Mortgagee of its right to an
informal conference.
(1) Informal Conference
FHA will expeditiously arrange for a conference where the Mortgagee may
present information and argument in opposition to the proposed withdrawal. The
Mortgagee may be represented by counsel.
(2) Determination
After consideration of the material presented, FHA will issue a decision in writing
stating whether the proposed termination is rescinded, modified, or affirmed.
(3) Appeal and Final Agency Action
The Mortgagee may appeal the decision to the Deputy Assistant Secretary (DAS)
for Single Family Housing or his or her designee. A decision by the DAS for
Single Family Housing or his or her designee constitutes final agency action.
iii. Credit Watch Termination of Title II Mortgagees
HUD may terminate a Mortgagee’s authority to originate or underwrite FHA-insured
Single Family Mortgages in any geographic area where the Mortgagee has an excessive
rate of early defaults and claims in accordance with the Credit Watch Termination
regulations at 24 CFR § 202.3(c)(2). Credit Watch Termination is separate and apart from
any action that may be taken by the MRB.
Frequency and Scope
FHA reviews the default and claim rate of FHA-insured Single Family Mortgages on
a quarterly basis. FHA compares the rate of each participating Mortgagee with the
rates of other Mortgagees in the same geographic area. The review is limited to
Mortgages with an amortization date within the preceding 24 months.
Cause
FHA may terminate the origination or underwriting authority of any Mortgagee
whose default and claim rate exceeds both the national default and claim rate and 200
percent of the default and claim rate within the geographic area served by a HUD
field office.
Handbook 4000.1
Effective Date: 09/14/2015 | Last Revised: 08/14/2019
*Refer to the online version of SF Handbook 4000.1 for specific sections’ effective dates
1004
| File Type | application/pdf |
| File Title | Microsoft Word - 1-SF Handbook 4000 1 Update 6C - iSRi TE 20190807- clean No Highlights20190808 |
| Author | H50217 |
| File Modified | 2019-08-13 |
| File Created | 2019-08-08 |