FHA Rule Reduces Barriers to Reverse Mortgages for Condominium OwnersAfter a nearly three-year delay, the U.S. Department of Housing and Urban Development (HUD) has finally released an update to its FHA condominium rules. The new rules, which take effect October 15, 2019, allow for FHA insurance approval on individual condominium units and ease burdensome FHA-insured reverse mortgage application requirements on condos, expanding access to the product for the many senior citizens living in condominium projects.

In 2008, FHA eliminated approval on individual condominium units, and HUD required a condominium owner to receive FHA approval on the entire condominium project to allow a HECM on the owner’s single unit. This process was time-consuming and expensive, causing many condominium owners to not pursue a reverse mortgage and, if a condominium owner did decide to seek a reverse mortgage, many condominium associations refused to go through the FHA approval process. Under the new “individual unit approval” rule, these burdensome requirements are reduced, and FHA estimates that it will qualify an additional 20,000 to 60,000 condominium units per year for FHA-insured financing, some of which will be HECMs.

Under the new rules, a condominium owner may be eligible for FHA individual unit approval if the condominium unit is in a building where no more than 10% of the units are FHA-insured or, if in a building with fewer than 10 total units, no more than two units hold FHA insurance. HUD also adjusted the owner-occupancy rules, now only requiring that 50% be owner-occupied. In addition to these changes, the rule also expands financing for mixed-use projects, permitting condominium projects to have up to 35% of the total floor area to be dedicated to commercial space.

The reverse mortgage industry has been advocating for the new condominium rules for several years. The new rules will allow seniors who own condominium units to more easily access equity in their homes. In addition to the benefits the updated condominium rules provide to forward mortgages, HUD Secretary Ben Carson highlighted that the reverse mortgage portion of the rule change will assist seniors “who are hoping to live independently and to age in place.” In conjunction with the released final rule, HUD also released an updated version of the FHA Single Family Policy Handbook, reflecting the new condominium rules. If your reverse mortgage company intends to increase business in the condominium market, be sure to update your company’s policies and procedures by October 15, 2019, to meet HUD’s new rules.

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Photo of James W. Wright Jr. James W. Wright Jr.

Jay Wright is a partner in the firm’s Banking and Financial Services and Litigation practice groups. Jay has earned his Accredited Mortgage Professional (AMP) designation through the Mortgage Bankers Association (MBA), and is one of a small number of lawyers who have achieved…

Jay Wright is a partner in the firm’s Banking and Financial Services and Litigation practice groups. Jay has earned his Accredited Mortgage Professional (AMP) designation through the Mortgage Bankers Association (MBA), and is one of a small number of lawyers who have achieved this status.

Jay’s practice focuses on financial services litigation and regulation, and he is actively involved in lawsuits and disputes across the country representing companies involved in a wide array of state and federal law claims. His representation includes general defense of various claims against financial institutions, mortgage companies, and other commercial entities. Many of these claims involve allegations of wrongful foreclosure proceedings or violations of the Truth in Lending Act (TILA), the Real Estate Settlement Procedures Act (RESPA), and Federal Housing Administration (FHA) regulations, as well as various deceptive trade practices claims under state law.

Photo of Austin Holland Austin Holland

Austin Holland’s practice focuses on regulatory compliance matters, government enforcement actions, and financial services litigation. He has represented clients in a variety of matters, but his practice is particularly focused on issues with an emphasis on matters related to housing.

Prior to…

Austin Holland’s practice focuses on regulatory compliance matters, government enforcement actions, and financial services litigation. He has represented clients in a variety of matters, but his practice is particularly focused on issues with an emphasis on matters related to housing.

Prior to joining Bradley, Austin worked for the U.S. Department of Housing and Urban Development in the Office of Litigation, where he handled matters related to affordable housing, reverse mortgages, fair housing, bankruptcy, foreclosures, grant recaptures, rulemaking, religious discrimination, and the Appointments Clause of the U.S. Constitution.