FHA condo approval changes effective February 1, 2010 – DELRAP and HRAP

15 January 2010 Categories: Appraisals, FHA, First Time Home Buyer, Regulations

Many of you have heard that FHA condo spot approvals are now going away. While this isn’t entirely true, there are some big changes coming and they start February 1st – next Monday!

Here is an attempt to describe the changes and the impact they’re going to have:

Lenders will no longer be doing spot approvals. Instead, there are two options, both based on criteria put forth by the U.S. Department of Housing and Urban Development (HUD):

  • DELRAP Approval (Direct Endorsement Lender Review and Approval Process)
  • HRAP Approval (HUD Review and Approval Process) and

The big difference is this: for DELRAP, I work with the bank and their builder approval group to get an approval, which takes a couple weeks. For HRAP, it goes to HUD, this can take a month or two…if you’re lucky. And with all the new projects that will now need approval, the HRAP times will most likely increase.

Details:

DELRAP Review Eligibility and Process Requirements Process

  • Brokers still have the option of working directly with HUD for an HRAP review for projects requiring a project approval (read: slow approval, harder to get)

OR

  • Brokers can work with their bank’s account executive (AE) to get a DELRAP approval through the Builder Project Approval Group (BPAG). Once all required documents are received, BPAG will complete the DELRAP review or, if necessary, forward to HUD for a HRAP review and approval. BPAG will determine DELRAP eligibility based on a few additional bank overlays (underwriting rules) defined below.

Note – If an extension or recertification is requested on a project not originally processed as a DELRAP through BPAG, a full review of the project documents will be required.
BPAG DELRAP project reviews will be completed within about two weeks of a complete submission. Compared to the month-plus timeline for HRAP, which is likely to increase, that is pretty good!

DELRAP Eligibility

The following are ineligible for a DELRAP review and must be sent to HUD for an HRAP review:

  1. Anything identified on the builder certification, appraisal, or other documentation obtained pertaining to environmental hazards.
  2. Any unobstructed view of an oil refinery, propane distribution center, large gasoline storage tank(s), etc. Note – projects next to a gas station are eligible for DELRAP.
  3. Superfunds (dumps or landfills) identified on the EPA Web site that have ongoing maintenance.
  4. Project is located on wetland or national wetland and insufficient documentation approving the project’s location.
  5. Historic districts and insufficient documentation approving the project’s location.
  6. Budget without at least a 10% line item allocation for capital replacement unless a reserve analysis is obtained.
  7. Fidelity bond coverage not in the name of the association, i.e. Management Company provided fidelity bond coverage.
  8. Manufactured home projects.
  9. On a case-by-case basis, any project within a potential noise issue that does not have sufficient mitigating factors.

My take on all of this: FHA condo financing is about to get tougher. If the project is not currently approved by HUD/FHA, it’s going to be difficult to get FHA financing.

Realtors – make sure you know whether a condo is FHA-approved before taking a client using FHA financing out to see it. You don’t want them to form an attachment to a property they can’t buy and set their expectations based on that.

For complete information on this, visit HUD’s press release on the topic.

Read the full article 0 Comments