The U.S. Department of Housing and Urban Development (HUD) issued a new Mortgagee Letter (ML) late Thursday updating the origination requirement for FHA mortgages on condominium units, applicable to both the traditional, forward mortgage and reverse mortgage programs simultaneously. The letter provides additional clarification ahead of the rule’s implementation on October 15.
“FHA published ML 2019-17, Home Equity Conversion Mortgage (HECM) Program – Condominium Requirements, which outlines the updated origination requirements for HECMs in condominium projects in accordance with the recently published Single-Family (SF) Handbook guidance,” said HUD in a press release. “It also includes certain borrower eligibility requirements for seniors seeking to obtain a HECM for a condominium unit using FHA’s Single-Unit Approval process.”
Last month, HUD announced a forthcoming rule designed to make it easier for condo owners to get reverse mortgages and other FHA financing. The new rules related to condominiums going into effect next month will expand FHA financing for qualified first-time homebuyers as well as seniors looking to age in place, according to an August press memo released by HUD.
“For seniors, part of our mission is to provide affordable options to age in place. Condominiums can make a lot of sense for many seniors [for reasons of affordability],” said FHA Commissioner and Acting Deputy HUD Secretary Brian D. Montgomery on an August conference call with reporters. “Our single unit review now also includes reverse mortgages, known as Home Equity Conversion Mortgages (HECMs), designed to help seniors age in place.”
FHA estimated the new policy will notably increase the amount of condominium projects that will be able to gain FHA approval. 84% of FHA-insured condominium buyers have never owned a home before, according to agency data. Only 6.5% of the more than 150,000 condominium projects in the United States are approved to participate in FHA’s mortgage insurance programs.