The Federal Housing Authority (FHA) has announced that it is proposing a new rule that would revamp the approval process for condominium developments. The purpose is to make the process less restrictive and be more in tune to the market conditions.

Under the proposed rule, the FHA would reinstate approvals for single units in unapproved developments and would extend the period of time for condominium projects to recertify their approvals from every two years to every three years. The agency initially required at least 50% owner occupancy for all approved developments, but is now looking to set the owner occupancy requirement between 25% and 75%, depending on what the market dictates.

For mixed-use condo projects, the current rule states that no more than 50% of the total floor area can be used for commercial or nonresidential use due to concerns that too much commercial/nonresidential space would hurt the character of the residential area. The agency is proposing changing the limit to 25% to 60% of the total floor area; the idea is for the FHA to give itself leeway in adjusting the floor space limits as needed.

Another proposed change is to the requirements mortgage lenders must meet to be granted Direct Endorsement Lender Review and Approval Process (DELRAP) authority for condominiums. This includes at least one year experience underwriting mortgages for condominiums, performing at least 10 condo loan originations in HUD-approved projects, putting a quality control plan in place that also involves DELRAP and having only experienced staff members take part in the project approval process. The proposed rule would further grant DELRAP authority to lenders if they submit all project approvals and denials to the FHA for review.

If you are interested in purchasing or investing in a residential real estate property, it is important to contact an experienced real estate attorney who can guide you through the process and protect your legal rights. For more information about our real estate law practice, contact AGMB at 310-300-2900 for the Los Angeles office, or 212-201-1170 for the New York office.