The Housing and Economic Recovery Act of 2008 (HERA) granted authority to add individual manufactured housing units located in condominium projects to HUD for FHA insurance. This property type had always been ineligible prior to this legislation for loan programs insured by FHA, which included the HUD insured Reverse Mortgage HECM (Home Equity Conversion Mortgage).

With the issuance of HUD Mortgagee Letter 2009-16, dated May 21, 2009, senior borrowers, age 62 and over may now obtain government-insured reverse mortgages on these properties provided the properties meet HUD guidelines. At least, according to HUD they are now eligible.

This is good news for senior borrowers but there are some things that every senior borrower living in a manufactured condominium project needs to keep in mind.  Firstly, lenders are not yet ready to accept the product and none have announced their guidelines and/or procedures for handling these loans for the HECM product.

HUD may state that they can take it, but the lenders have to announce how they will handle it since HUD is not the actual funding source. As of this writing, no lender has yet announced their program for these loans and therefore, no one has any way to determine what, if any, additional lender requirements may be imposed as well.

HUD’s announcement states that until they can send out updated condominium project approval guidelines for manufactured condominium projects, that the project approval is subject to the requirements found in HUD Manual 4150.1, Chapter 11.  The Mortgagee Letter goes on to specify that their “Spot Loan Approval” process is not available (as outlined in Mortgagee Letter 1996-41) and that all manufactured housing condominium projects must obtain full approval by the applicable Home Ownership Center (HOC) for HUD that has authority over the geographical area where the project is located. 

...But what does all that mean?! 

Among other things, it means that since this type of project has never been eligible for approval in the past, none of the projects are on the HUD approved projects list and every single project will require HUD approval for the Reverse Mortgages to be completed until at least one of the units in the project have been done and HUD has approved the project.  The HUD portion of the review and approval currently takes approximately 6 – 8 weeks for the project alone.

Chapter 11 of the 4150.1 manual is approximately 32 pages long and encompasses everything from owner occupancy requirements, to common facility completion requirements; legal review of the condominium documents to phasing eligibility; review of the insurance of the project to management agreements and operating budgets and much more.  Different things are required depending on the age of the project.  In addition to the 4150.1 for condominium projects, the property also has to meet HUD’s guidelines for manufactured housing which, per HUD guidelines, includes:

	Have a floor area of not less than 400 square feet;
	Be constructed after June 15, 1976, in conformance with the Federal manufactured home construction and safety standards, as evidenced by an affixed certification label in accordance with 24 CFR Section 3280.8; (manufactured homes produced prior to that date are ineligible for insured financing);
	Be classified and subject to taxation as real estate;
	The mortgage must cover both the manufactured unit and its site and shall have a term of not more than 30 years from the date amortization begins;
	Built and remains on a permanent chassis;
	designed to be used as a dwelling with a permanent foundation built to FHA criteria; and
	The finished grade elevation beneath the manufactured home or, if a basement is used, the lowest finished exterior grade adjacent to the perimeter enclosure, shall be at or above the 100-year return frequency flood elevation.

We can only hope that reverse mortgage lenders clarify their positions on this program soon so that we can begin accepting applications but they may not be able to do so until HUD issues their further clarifications. Until HUD issues further updated guidance on processing of condominium projects for manufactured housing units and the lenders issue their guidelines accordingly, the process for getting a manufactured condominium project will remain unsure and therefore no lender may want to be “the first on the block” to learn the hard way that they got it wrong. 

Lenders knew that HUD was going to be accepting the manufactured homes in condominium projects ever since the passage of the HERA in August of last year, but without HUD’s clarification, lenders are hesitant to jump out and try to implement the program.

Even when HUD does issue the guidance, it may remain very lengthy process to obtain project approval if the “Spot Loan Approval” process is not instated for these projects as well.  The Spot Loan Approval process as outlined in Mortgagee Letter 1996-41 allows for a small percentage of a project meeting certain HUD guidelines to receive approval without the entire project having to be approved.

This would give lenders a chance to lend on 10 – 20% (depending on the size of the project) without having to get complete project approval. That would allow senior borrowers to start in some projects until the project can become approved or in the case of those projects that never would become approved, it would allow a small percentage of senior borrowers to still be able to access the equity in their homes through the HECM program.

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