Federal Housing Administration Commissioner David H. Stevens has clarified and updated some of the changes made recently by FHA regarding condominium approvals, new net worth requirements for FHA-approved lenders, broker participation in FHA programs and electronic signatures.

Stevens said that questions continue about temporary changes to the condo approval process which took effect in December 2009.  He restated the changes which:

  • Allowed the exclusion of tenant occupied and REO properties from the 50 percent owner-occupied calculation.
  • Reduced the pre-sale requirement to 30 percent of total units to 30 percent.
  • Increased the FHA concentration from 30 percent to 50 percent. FHA will display concentration information on the approved condo listing found on the FHA Connection and Condominium Project Maintenance Screens.

These changes are to remain in effect until December 31, 2010.

Stevens also restated a permanent change that went into effect in June 2009, which eliminated project approval for site condos, are defined as single-family detached units encumbered by condo covenants or under condominium ownership.

He said that, because of problems with lender IT systems, a waiver was recently posted for the requirement of HO-6 insurance coverage where a Master Policy does not cover the interior of individual units.

The first phase of the new increased net worth requirements for FHA-approved mortgagees went into effect on May 20 for new applicants.  Existing mortgagees will have until May 20, 2011 to meet the new net worth requirements and an even more gradual increase in net worth levels - to May 20, 2013 - have been made for small business mortgagees.  FHA is using the Small Business Administration's size standards to determine if a lender can be classified as a small business.  At present that requirement for businesses in the mortgage lending industry is less than $7 million in annual receipts for non-depository institutions and $175 million in assets for depository institutions.

As of May 20, FHA is no longer approving loan correspondents for participation in FHA programs.  Existing approved correspondents that satisfy the requirements to renew their approval for 2010 will keep that approval through the end of 2010.  Non-FHA-approved mortgage brokers can still originate single family FHA-insured loans when sponsored by an FHA-approved mortgagee who will now be held responsible for the performance of all the loans they underwrite.  Sponsored brokers may originate, process, and fund loans as approved by their sponsors, however, only the FHA approved sponsoring mortgagee can close those loans and submit them for insurance endorsement. Stevens said that additional changes regarding the operations of these sponsorships will be detailed in a forthcoming Mortgagee Letter.

Stevens said that the recent announcement that electronic signatures would be accepted on third-party documents originated outside of the lenders control is just a first step.  Lender Originated Documents such as the Uniform Residential Loan Application and loan disclosures signed by the borrower will probably be the next category of documents for which electronic signatures will be acceptable, possibly by this fall.  He stressed that lenders are expected to employ the same level of care and due diligence for those documents as for those with ink signatures including meeting the same document retention requirements.