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Will FHA Condominium Spot Loans Return?

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RSL Condo Team | 15 Aug 2014, 11:07 AM Agree 0
Earlier this year, a ReadySetLoan team member attended a roundtable session in Washington D.C. as an industry expert for FHA Condo Approvals. During the session, one of the topics of discussion was the potential for the return of FHA condominium spot mortgages.

Spot Loans were initially allowed in 1996 and the intention was to allow single mortgages in smaller projects that were not willing to get approved with FHA or that were unable to change their legal documents to conform to FHA’s standards for project approval.

The program posed a risk that was beyond FHA’s threshold which ultimately led to the cancelation of the program in 2010. Among other reasons, spot mortgages were hard to track and could have led to excessive use in projects where they probably shouldn’t have been allowed at all.

In addition, the former spot mortgage approval form that accompanied the mortgage submission package could be completed by almost anyone. The form asked many questions about the condominium project but it was not required that the form be completed by someone who was involved with the project, such as a member of the Board of Directors, an attorney or the property manager. The form could be completed by the mortgage officer or the developer and frequently it was.

Even for an outsider to the mortgage industry, it is not difficult to see that this could have resulted in false certifications as many who completed the form had a vested interest in the approval of the spot mortgage.

All FHA mortgages are tracked by their case numbers. Currently, a case umber may not be assigned for a mortgage in a project that is not FHA-approved. When a project is approved, it is given a condominium ID number. Previously when a spot mortgage was done, it was not tied to a condo ID which would have made tracking these mortgages nearly impossible.

However, FHA does realize that spot mortgages provide a viable financing option and it has been discussing this for some time. In order for spot mortgages to return, it will have to go through the process of law as well as solving several of these logistical matters.
Unfortunately, it is not known for certain whether or not spot mortgages will be reintroduced as a financing option for condominiums but it certainly is promising to know that a discussion is continuing to take place.

What is an FHA Spot Loan?
Get the answer here: http://goo.gl/2Zxvu2.
Eric Boucher

FHA/VA Condo Approval Specialist, RSL Condo Team

T404-433-4565 F860-644-3772 http://www.readysetloan.com
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