In our inaugural issue in October, 2016, we reported that HOTMA was unanimously approved in the U.S. House of Representatives and Senate and signed into law by President Obama on July 29, 2016. The full text of the bill is available here.

Among other things, HOTMA required the Federal Housing Administration (FHA) to:

  • modify its certification requirements to make recertifications substantially less burdensome than original certifications,

  • consider lengthening the time between certifications,

  • allow information to be updated rather than resubmitted for recertifications,

  • allow private transfer fee covenants in the same manner as Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac), and,

FHA had 90 days from July 29, 2016, or until October 27, 2016, to provide guidance regarding the percentage of units that must be occupied by owners or that percentage would default to 35% (down from 50%).

On September 27, 2016, FHA released a proposed regulatory update to its condominium mortgage insurance program that was published in the Federal Register and provided a 60-day comment period, which ended on November 28, 2016. A summary of the major provisions prepared by CAI can be read if you click here. Of particular note was the proposed owner occupancy requirements providing for a range between 25 and 75 percent. To read the proposal in full, click here. The process from here is unclear, and we will provide further information when it becomes known.

On October 26, 2016, FHA published Mortgagee Letter 2016-15 (ML 2016-15) that establishes FHA’s condominium project approval owner occupancy percentage requirements as mandated by HOTMA. You can view ML 2016-15 here. Regarding owner occupancy for existing units, ML 2016-15 amends FHA’s Condominium Project Approval and Processing Guide, and clarifies the definition of owner occupancy; and establishes conditions under which FHA will allow owner occupancy in Existing Projects as low as 35 percent, as follows:

  • applications must be submitted for processing and review under the HRAP option
  • financial documents must provide for funding of replacement reserves for capital expenditures and deferred maintenance in an account representing at least 20% of the budget; and
  • no more than 10% of the total units can be in arrears (more than 60 days past due) on condominium fee payments; and
  • 3 years of acceptable financial documents must be provided.

In sum, the current owner-occupancy requirement remains at least 50%, although the requirement may be lowered upon certain conditions.