The required Federal Housing Administration (FHA) approval process for condominiums has been a consistent thorn in the side of the reverse mortgage business. Because it is the full condo complex that is required to have FHA approval, lenders have to approach each un-approved complex’s association or board in order to encourage them to go through with the process.
It’s not unusual for originators to encounter resistance from these boards, often receiving prospective borrower interest that will go unfulfilled because of the complex’s lack of FHA approval. The road to getting that approval is often time-consuming and complicated.
To rectify this issue, some lenders have created dedicated departments in-house to help walk condominium complexes, associations and boards through the FHA approval process, resulting in a higher probability of success among residents looking to partake in reverse mortgages. The practice appears to be a relatively recent development, with the effort at one major lender beginning within the last couple of years.
Why create a condo division
“This department has been functioning since 2016 and we expanded its services into the wholesale market in September 2018,” a spokesperson for American Advisors Group (AAG) told RMD in an email.
AAG developed its dedicated condo division based on two primary factors: the number of potential borrowers who were effectively shut out of the reverse mortgage market because of their condominiums’ lack of FHA approval, and the complexity of the rules that can actively discourage homeowners associations (HOAs) from beginning the approval process in the first place.
“We identified a large group of potential borrowers who wanted a reverse mortgage loan, but owned condominiums that weren’t FHA approved and didn’t know what steps to take,” the AAG spokesperson said. “We built this department to navigate these seniors towards FHA approval so they can utilize their home equity and enjoy a better retirement.”
Reverse Mortgage Funding (RMF) also has company infrastructure in place to assist potential condo borrowers in both their government-insured and proprietary offerings.
“We have a condominium desk which is available to assist our brokers with getting developments approved both for FHA/HECMs, as well as for our [proprietary] Equity Elite program,” said Mark O’Neil, national sales leader for wholesale and correspondent at RMF.
In AAG’s case, they identified an opportunity to create a pool of resources the company could provide to potential customers that are oftentimes not readily available to lenders themselves, and by extension, condo complex residents and HOAs.
“Most lenders lack the resources necessary in helping borrowers and HOAs through the FHA condominium approval process and this department specializes in helping bridge that gap,” the AAG rep said. “This extension of AAG has become especially important for our National Field Sales loan officers who commonly interact with HOA’s that don’t have the wherewithal to obtain FHA approval.”
What the divisions do
The deterring level of complexity in gaining FHA approval is the exact thing that dedicated condo divisions hope to eliminate from the overall process. At AAG and after a loan officer facilitates introductions between the HOA and the condo division, the division reaches out to the HOA’s board with a checklist of information they’ll need in order to move forward with the approval process. Once that information is received by the condo division, then AAG begins their work.
“We do all the heavy lifting and hold the homeowner’s hand through the whole process,” the AAG spokesperson told RMD. “We work directly with their HOA and make recommendations to help them meet all FHA requirements. When we feel the requirements are met, we send all necessary material to HUD for approval.”
In RMF’s case, they focus on direct broker assistance in order to provide a greater degree of simplicity to partners in trying to establish more condo business.
“On FHA/HECM, we assist our brokers first by training them on the approval process and what documentation to gather,” O’Neil said. “When a broker has a development they need to get approved, we work closely with them on gathering the documents and making sure we have a complete application. Once the application is complete, RMF handles submitting directly through FHA’s HUD Review Approval Process (HRAP) program and will follow up with them on any questions, right through to final approval.”
RMF also has a procedure in place to facilitate approval through their proprietary offerings, but since those products are created by the company the process is generally easier.
“For Equity Elite, the process works similarly, in that we first train the brokers on the required documentation and process,” O’Neil said. “Since this is an RMF program, the process is a lot more streamlined and goes much more quickly than an FHA project approval.”
For RMF’s Equity Elite proprietary offering, RMF also requires no reviews for the development’s Covenants, Conditions & Restrictions (CC&Rs), O’Neil shared. “That makes a lot more developments eligible than for FHA,” he said.
Measures of success
AAG pointed out that its division has been highly successful in expanding its business possibilities by facilitating FHA approval among the vast majority of HOAs that enlist the division’s assistance.
“We’ve had tremendous success helping condominium projects across the country,” AAG’s spokesperson said. “Our thorough internal review process has ensured that over 98% of our submissions gain FHA approval.”
It’s precisely because of that high success rate that AAG has expanded its availability to other channels in the aim of expanding opportunities for potential borrowers even further.
“The initial success of our program fueled us to expand our efforts to our wholesale partners. Most brokers don’t have the staff and availability to secure FHA approvals for condominiums, and that’s a problem this partnership is helping to fix.”
In the case of RMF, the company sees condominiums as a potentially important part of the overall business, installing a team of experienced professionals to oversee the approval process for their lending partners and borrowers.
“We have a very experienced condo team at RMF and they take great pride in their work,” O’Neil said. “Overall, condominiums fill an important niche in RMF’s business and we feel our condo desk is a real advantage for us and our broker clients.”
In terms of expanding availability to a new pool of potential reverse mortgage borrowers, AAG is pleased with the results of its division on both the consumer-facing side, as well as between the company and its affiliated brokers.
“This department has expanded our financial solutions to more seniors than ever before by opening up HECM availability to new communities,” the spokesperson explained. “Moreover, it’s given our broker partners a less expensive and speedier way to help their clients who reside in non-FHA approved projects.”
The commonality of dedicated condo divisions
The creation of dedicated condo divisions involves a very work-intensive process that requires a lot of specific steps. Still, there is an observed opportunity by one originator to expand on potential business through these divisions.
“It’s quite a lengthy process, there’s an application and quite a bit of work that has to be done,” said Rich Pinnell, an originator with Guild Mortgage in Redding, Calif.
While the company doesn’t have a comparable division, Longbridge Financial does aim to facilitate a review process under Fannie Mae for its proprietary offering.
“Although we don’t currently have a special service for this, our proprietary program (Platinum) offers the FNMA limited review process which expands condo eligibility beyond the strict guidelines of the HECM program,” said Eve Kroepke, director of marketing at Longbridge Financial.
The fact that companies are active in the space of facilitating FHA approval at more condominium complexes is very logical, because of the fact that FHA approval works for more than just reverse mortgages, Pinnell said.
“Once a condo [complex] is approved, it could also be used for forward mortgages, too. So, first homes and last homes,” he said. “Not a bad concept.”
