Deciphering the Recent FHA Condominium Changes Announced in Mortgagee Letter 2012-18

Written By: Stacey Sprain

If only HUD would give me a job so I could revise their way of updating existing policies it would sure make a lot of our lives a whole lot easier so we could all work more efficiently! I don’t know about all of you but I sure get frustrated trying to sort through things like Mortgagee Letter 2012-18 while trying to compare it to the materials that were issued with Mortgagee Letter 2011-22. Sometimes I wonder if I’m the only dummy who has to sit in complete silence in the wee hours of the night after the kid’s gone to bed in order to concentrate and focus hard enough to really make sense of the changes in decent time. It’s so frustrating having to pull up the 95 page condo guide issued in 2011 while reading through the newly issued Mortgagee Letter and trying to figure out what is really changing. Wouldn’t it make a whole lot more sense to just revise the Condominium Guide that was issued with Mortgagee Letter 2011-22 to indicate the changes announced in Mortgagee Letter 2012-18 and attach THAT with the new Mortgagee Letter so that thousands of people don’t have to try and do that out in the market? (p.s. if anyone at HUD is reading this, call me- let’s talk!)

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But enough of my ranting and complaining- let’s get on to the real purpose of this week’s article which is to help you quickly make sense of the changed it took me much longer than this to make sense of.

Mortgagee Letter 2012-18 dated September 13, 2012 was issued to communicate temporary condominium policy adjustments that are needed to adapt to current housing market conditions. The guidance in this latest Mortgagee Letter is effective for all condominium project approvals, re-certifications, annexations or reconsiderations submitted for review on and after 09/13/2012 through 08/21/2014, unless further extended by FHA.

Important note- Since HUD did not update the prior issued Condominium Processing Guide, these temporary policy changes must be manually applied. This is important to keep in mind if you utilize the FHA Condominium Processing Guide as your primary FHA Condominium resource. However, I did find that if you re-print the Guide to your own Adobe Pro you can electronically cross out the sections of the Guide that are no longer accurate with the Mortgagee Letter changes and add in electronic post-it notes to show the changed guidelines so that you can indeed maintain one source of the updated information. It’s not perfectly ideal but it seems to work.

In short form, in case you have ADHD characteristics like myself, these are the changes:

• Clarity has been added to the definition of an “Under Construction” project
• The owner-occupancy percentage requirement has been lowered by 1% from 51% to 50% for Converted, Non-Gut Rehabilitation Condominium Projects
• Exception request options and requirements for exceeding the maximum allowed percentage of commercial/non-residential space have been expanded and clarified
• The maximum allowable investor ownership percentage for all existing or non-gut rehabilitation projects has been increased from 10% to 50% with unoccupied and unsold units owned by a builder/developer not required to be considered as investor owned and subject to the requirements unless the unit is currently rented or has previously been occupied.
• The definition of “delinquent” has been updated for HOA dues to state that those units who are greater than 60 days past due must be counted in the maximum allowable 15% (previously was defined as greater than 30 days past due) and exceptions to the 15% maximum will no longer be considered under any circumstances.
• Requirements for Fidelity Bond Insurance coverage has been expanded to specify clearer guidance for the HOA association’s coverage responsibilities and the coverage responsibilities for management companies when projects are managed by third party firms
• Lastly, the Appendix-A Project Certification form has been updated with new language requirements and is included as an attachment with Mortgagee Letter 2012-18.

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Be sure to refer to the following resources for FHA condominium project eligibility requirements and approval processing information:

• FHA Condominium Project Status Search Site

• Mortgagee Letter 2012-18

• FAQs re: Mortgagee Letter 2012-18

• Mortgagee Letter 2011-22

• FHA Condominium Approval Processing Guide

• HUD Condominium Mortgage Insurance Page

About The Author

Stacey Sprain - As an NAMP® staff writer, Ms. Stacey Sprain is currently a NAMP® member in good standing, and is a NAMP® Certified Ambassador Loan Processor (NAMP®-CALP). With over 15+ years of mortgage banking experience, Stacey is also a Quality Control Manager for a major mortgage lending institution. If you would like to become a volunteer writer for us, please email us at:

Opinion-Editorial (Op-Ed) Disclaimer For NAMU® Library Articles: The views and opinions expressed in the NAMU® Library articles are those of the authors and do not necessarily reflect any official NAMU® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMU®. Nothing contained in this articles should be considered legal advice.