MBA Offers HUD Recommendations on Improving FHA Condo Program

The Mortgage Bankers Association submitted comments to HUD this week, offering recommendations to improve the FHA Condominium Program.

FHA recently revised documents facilitating the condominium program and asked stakeholders for comments in developing clearer and more consistent FHA forms and policies.

Specifically, HUD asked for input on its HUD-9991 and HUD-9992 collection forms, which are used in the approval of FHA insurance for condominium purchase and refinance transactions.  HUD-9992 seeks project-level approval and is completed by a condominium association or management company and the “submitter,” which can be the mortgagee, the builder, the condominium association itself, or another “eligible submission source.” HUD-9991 is a loan-level form to be completed by the mortgagee and the condominium association or management company for FHA-insurance approval on a condominium purchase within an FHA-approved project. In other cases, the HUD-9991 is required for single-unit approvals in projects that have yet to receive FHA approval.

In its letter, MBA offered the following observations/recommendations:

— Overall, collection of data from the Condominium Association/Management Company has little practical utility as it is largely misrepresented, misunderstood or missing. MBA members report that the data provided by Associations administering condominium projects frequently is not of a high-quality standard. “MBA recommends that FHA reevaluate the practical utility of this data collection,” the letter said. “If the lack of accuracy of the data merits reconsideration of the inclusion of this data field and FHA decides to remove this data collection from the questionnaire, FHA should further consider allowing the questionnaire to stand for a reasonable amount of time.”

–It has proven to be extremely difficult for Associations and lenders to accurately determine the ownership rate of a single entity or related parties. MBA recommends the questionnaire forms be amended to collect information that solely documents the units owned by a single owner and remove the requirement that Associations identify “Related Parties” that also own units within the project. 

–FHA is not accurately estimating the burden of this information collection, as working with the Associations often leads to significant fees, frustrating delays, and/or deterioration of purchase contracts. MBA noted lenders have reported that working with Associations administering condominium projects frequently is onerous and negatively impacts customer experience. “Some Associations’ unwillingness to complete the required forms has resulted in borrowers seeking more expedient forms of financing, or consequently, choosing to withdraw from the mortgage transaction altogether,” MBA said. 

–Allowing lenders to elect to obtain and certify information increases the quality, utility and clarity of the information to be collected.  Given that the burden of the information collection lies in the working relationship between the Associations and mortgagees, MBA recommends FHA grant the option to mortgagees to complete the portions of forms -9991 and -9992 currently identified for completion by the Associations, providing relevant documentation and certification of accuracy. 

–Enabling electronic submission of responses by automating the form via FHA Connection, and/or providing the form in an editable pdf form, would minimize the burden of the collection of information. 

–MBA strongly encourages FHA to train HOC staff on implementation of HUD-9991 and 9992 to provide clear and consistent messaging to mortgagees. “Lenders have cited several incidents in which inquiries regarding the approval process have generated conflicting guidance from different HOCs,” MBA said. “Administration of a strong FHA condominium program relies on lender certainty in the execution of its contracts, a certainty dependent on the clarity and consistency of its guidance.”