[Federal Register Volume 60, Number 121 (Friday, June 23, 1995)]
[Proposed Rules]
[Pages 32630-32632]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-15356]
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Office of the Assistant Secretary for Housing-Federal Housing
Commissioner
24 CFR Parts 206 and 234
[Docket No. FR-3655-P-01]
RIN 2502-AG23
Mortgage Insurance on Condominium Units in Non-FHA Approved
Projects
AGENCY: Office of the Assistant Secretary for Housing-Federal Housing
Commissioner (HUD).
[[Page 32631]] ACTION: Proposed rule.
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SUMMARY: This rule would add provisions to the regulations governing
Federal Housing Administration (FHA) mortgage insurance on condominium
units to permit insurance of mortgages on individual units in
condominium projects that have not received FHA approval in advance
under existing regulatory requirements. These ``spot loans'' would be
approved under less stringent requirements than the existing
requirements for mortgage insurance for condominiums, but the revised
rule would require satisfaction of standards that would assure FHA
adequate protection of the reduced risk involved of mortgage insurance
on only a few loans in any particular project.
DATES: Comments due date: August 22, 1995.
ADDRESSES: Interested persons are invited to submit comments regarding
this proposed rule to the Rules Docket Clerk, Office of General
Counsel, Room 10276, Department of Housing and Urban Development, 451
Seventh Street SW., Washington, DC 20410. Communications should refer
to the above docket number and title. A copy of each communication
submitted will be available for public inspection and copying between
7:30 a.m. and 5:30 p.m. weekdays at the above address. Faxed comments
will not be accepted.
FOR FURTHER INFORMATION CONTACT: Richard Manuel, Acting Director,
Single Family Development Division, Office of Insured Single Family
Housing, Department of Housing and Urban Development, 451 Seventh
Street SW., Washington, DC 20410. He may be reached at (202) 708-2700
(voice) or (202) 708-4594 (TDD). These telephone numbers are not toll-
free.
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act Statement
The information collection requirements contained in Sec. 234.26(i)
of this proposed rule have been submitted to the Office of Management
and Budget for review under the Paperwork Reduction Act of 1980 (42
U.S.C. 3501-3520). The estimated public reporting burden is not
expected to increase significantly over the burden previously
estimated, since the Department does not expect more than 2,000 loans
to be insured under this new provision.
The estimated public reporting burden of these collections is
stated under the Preamble heading Findings and Certifications. Send
comments regarding this burden estimate or any other aspect of these
collections of information, including suggestions for reducing the
burden, to the Department of Housing and Urban Development, Rules
Docket Clerk at the above address; and to the Office of Information and
Regulatory Affairs, Office of Management and Budget, Attention: Desk
Officer for HUD, Washington, DC 20503.
I. Background
The impetus for this proposed rule came from forums conducted by
the FHA Commissioner in the Northwest/Alaska region. Individuals have
been unable to obtain FHA mortgage insurance because condominium units
that were being purchased were not in projects that had received
approval under existing requirements. Existing regulations and handbook
provisions contain requirements that serve as obstacles to obtaining
mortgage insurance for units in condominium projects that have not been
approved during or after development.
For example, in order to conform with the policies expressed by FHA
in Handbook 4265.1, Appendix 24, a high percentage of the unit owners
must vote to approve certain changes in the common area, such as
converting any part of it to units, or selling or mortgaging any part
of the common areas. Such changes, while not a frequent occurrence--
because they affect the common area that is an undivided part of each
property--obviously impact on the interest of lenders and mortgage
insurers who look to the property as security for the mortgage. When
FHA's involvement in a project is sizeable, any such change to the
common area must be supported by a substantial part of the membership.
For an existing project that has not been approved during
development, it is often not possible to obtain the requisite majority
to approve the change and amend the documents accordingly just for the
benefit of a single association member wishing to apply for Section 234
mortgage insurance. FHA has determined that approval of a unit on a
spot loan basis would represent a reasonable underwriting risk even
where such document changes have not been made, provided that its
involvement is limited.
II. Action
The Department has determined that it is possible to insure a few
condominium units in a project that has not received project approval
by reducing the paperwork involved in obtaining approval. To assure
that this new provision would not be used as a way to avoid the greater
protections afforded the Department under the existing provisions for
project approval, it would be limited to approvals of no more than 10
percent of the units in a condominium project.
The intent of this proposed rule, therefore, is to facilitate sales
of units in well-managed condominium projects that are in good
condition. To accomplish this end, this proposed rule would add a new
paragraph to the section describing eligibility of condominium projects
for mortgage insurance (Sec. 234.26) to deal with these unit-by-unit
(``spot loan'') approvals for mortgage insurance. It also would add, in
the section dealing with reverse equity mortgages (Sec. 206.51), a
cross-reference to the new provision authorizing spot loan approvals.
To make clear that the requirements for assumability, such as no right
of first refusal given in any governing document, would still apply,
the condominium mortgage insurance provision would include a cross-
reference to that section (Sec. 234.66).
Findings and Certifications
Impact on the Environment
A Finding of No Significant Impact with respect to the environment
has been made in accordance with HUD regulations at 24 CFR part 50 that
implement section 102(2)(C) of the National Environmental Policy Act of
1969, 42 U.S.C. 4332. The Finding of No Significant Impact is available
for public inspection and copying during regular business hours (7:30
a.m. to 5:30 p.m.) in the Office of the Rules Docket Clerk, room 10276,
451 Seventh Street, SW, Washington, DC 20410-0500.
Federalism Impact
The General Counsel, as the Designated Official under section 6(a)
of Executive Order 12612, Federalism, has determined that the policies
contained in this proposed rule do not have significant impact on
States or their political subdivisions since the provisions of the
proposed rule affect private purchasers and sellers of condominium
units.
Impact on the Family
The General Counsel, as the Designated Official under Executive
Order 12606, The Family, has determined that this proposed rule does
not have potential for significant impact on family formation,
maintenance, and general well-being. Therefore, the proposed rule is
not subject to review under the Order. The proposed rule merely
broadens the coverage of condominium units for which mortgage insurance
can be obtained. [[Page 32632]]
Impact on Small Entities
The Secretary, in accordance with the Regulatory Flexibility Act (5
U.S.C. 605(b)), has reviewed this proposed rule before publication and
by approving it certifies that this proposed rule will not have a
significant impact on a substantial number of small entities, because
it makes available additional financing options for purchasers and
sellers of condominium units.
Regulatory Agenda
This proposed rule was listed as item number 1417 under the Office
of Housing in the Department's Semiannual Agenda of Regulations
published on May 8, 1995 (60 FR 23368, 23384) under Executive Order
12866 and the Regulatory Flexibility Act.
Public Reporting Burden
The Department has estimated the public reporting burden involved
in the information collections contained in the proposed rule as shown
below. The public reporting burden for each of these collections of
information is estimated to include the time for reviewing the
instructions, searching existing data sources, gathering and
maintaining the data needed, and completing and reviewing the
collection of information.
Tabulation of Annual Reporting Burden
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Responses
Description of information collection Number of per Total annual Hours per Total annual
respondents respondents responses response burden hours
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HUD/FHA................................... 2,000 1 2,000 .1 200
Condominium ``Spot Loan'' Checklist &
Warranty.................................
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Catalog
The Catalog of Federal Domestic Assistance number for the program
affected by this proposed rule is 14.133.
List of Subjects
24 CFR Part 206
Aged, Condominiums, Loan programs--housing and community
development, Mortgage insurance, Reporting and recordkeeping
requirements.
24 CFR Part 234
Condominiums, Mortgage insurance, Reporting and recordkeeping
requirements.
Accordingly, for the reasons stated in the preamble, parts 206 and
234 of title 24 of the Code of Federal Regulations would be amended as
follows:
PART 206--HOME EQUITY CONVERSION MORTGAGE INSURANCE
1. The authority citation would continue to read as follows:
Authority: 12 U.S.C. 1715b, 1715z-20; 42 U.S.C. 3535(d).
2. Section 206.51 would be revised to read as follows:
Sec. 206.51 Eligibility of mortgages involving a dwelling unit in a
condominium.
If the mortgage involves a dwelling unit in a condominium, the
project in which the unit is located shall have been committed to a
plan of condominium ownership by deed, or other recorded instrument,
that is acceptable to the Secretary, except as provided in
Sec. 234.26(i) of this chapter.
PART 234--CONDOMINIUM OWNERSHIP MORTGAGE INSURANCE
3. The authority citation for part 234 would continue to read as
follows:
Authority: 12 U.S.C. 1715b and 1715y; 42 U.S.C. 3535(d). Section
234.520(a)(2)(ii) is also issued under 12 U.S.C. 1701(a).
4. In Sec. 234.26, a new paragraph (i) would be added, to read as
follows:
Sec. 234.26 Project requirements.
* * * * *
(i) Notwithstanding the requirements of paragraphs (a) through (h)
of this section, a loan on a single unit in an unapproved condominium
project (``spot loan'') may qualify for mortgage insurance under this
part.
(1) The project must meet the following criteria:
(i) All units, common elements, and facilities--including those
that are part of any master association--must have been completed, and
the project cannot be subject to additional phasing or annexation. The
project must provide for undivided ownership of common areas by unit
owners;
(ii) Control of the owners' association must have been turned over
to the unit purchasers, and the unit purchasers must have been in
control for at least one year;
(iii) At least 90% of the total units in the project must have been
conveyed to the unit purchasers, and at least 51% of the total units in
the project must have been conveyed to purchasers who are occupying the
units as their principal residences or second homes. No single entity
(the same individual, investor group, partnership, or corporation) may
own more than 10% of the total units in the project;
(iv) The units in the project must be owned in fee simple or be an
eligible leasehold interest, as described in Sec. 234.65, and the unit
owners must have sole ownership interest in, and right to the use of,
the project's facilities, common elements, and limited common elements
including parking, recreational facilities, etc.;
(v) The project must be covered by hazard, flood, and liability
insurance acceptable to the Commissioner;
(vi) No more than 10% of the total units in the project may be
encumbered by FHA-insured mortgages. (If more than 10% of the units in
the project are encumbered by FHA-insured mortgages, the condominium
project must be approved under paragraphs (a) through (h) of this
section); and
(vii) The assumability provisions of Sec. 234.66 must be satisfied.
(2) Lenders must perform an underwriting analysis and certify that
a project satisfies the eligibility criteria for a ``spot loan'' on a
condominium project that has not been approved by FHA. Lenders may use
information from the appraiser, the owners' association, the management
company, the real estate broker, and the project developer, but the
lender must ensure the accuracy of the information obtained from these
sources.
Dated: May 22, 1995.
Nicolas P. Retsinas,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 95-15356 Filed 6-22-95; 8:45 am]
BILLING CODE 4210-27-P
