[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.................................                                                                      
----------------------------------------------------------------------------------------------------------------

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