*Information provided by HUD Mortgagee Letters A & B THE OAK PARK CONDO NETWORK presents FHA MODERNIZATION

*Information provided by HUD Mortgagee Letters A & B  Benefits of an FHA Project Approval  Guideline Changes  Approval Options  Approval Process & Documents  Questions Presentation Overview

*Information provided by HUD Mortgagee Letters A & B Historically, FHA had been considered an unfavorable method of home financing. Since the retraction of Conventional Condominium Financing, FHA financing has become a necessity. Higher loan-to-value ratios 3.5% Down payment requirement Less stringent credit requirements Lower monthly mortgage insurance Protection for the consumer Full Documentation Loans WHY FHA?

*Information provided by HUD Mortgagee Letters A & B Financing Comparison  FHA 3.5% Minimum Down Payment 600 Minimum Credit Score with 96.5% LTV Max DTI Varies 100% Gift Funds Permitted for Down Payment Full Doc No Reserves Assumable Mortgage Ins. Factor.55  Conventional 5-10% Minimum Down Payment 700 Minimum Credit Score over 80% LTV Max DTI 41-45% 5% Down Payment Required From Own Funds Full Doc 2 Months PITI Reserves Non-Assumable Mort. Ins. Factor.94

*Information provided by HUD Mortgagee Letters A & B GUIDELINE CHANGES  Spot Approval Process HUD/FHA has eliminated the Spot Approval Process for all FHA case number assignments effective on or after December 7, 2009.* Due to the concern of additional volatility in the condominium market, HUD has extended the spot approval process for all FHA case number assignments effective on or after February 1, 2010.*

*Information provided by HUD Mortgagee Letters A & B GUIDELINE CHANGES  FHA Concentration Requirements* The FHA concentration requirement will be increased temporarily to 50 percent. Exceptions to 50 percent Concentration Level. The FHA concentration may be increased up to 100 percent if the project meets all of the basic condominium standards plus the additional items stated below: The project is 100 percent complete and construction has been completed for at least one year, as evidenced by issuance of the final or temporary/conditional certificate of occupancy for last unit conveyed; 100 percent of the units have been sold and no entity owns more than 10 percent of the units in the project (for projects with fewer than 10 units, single entity may own no more than 1 unit); The project’s budget provides for the funding of replacement reserves for capital expenditures and deferred maintenance in an account representing at least 10% of the budget; Control of the Homeowners Association has transferred to the owners; and The owner-occupancy ratio is at least 50 percent. Not eligible for New Construction or Conversion Properties.

*Information provided by HUD Mortgagee Letters A & B  Owner-Occupancy Requirements * At least 50 percent of the units in a project must be owner-occupied or sold to owners who intend to occupy the units. Vacant or tenant-occupied real estate owned (REOs), including properties that are bank owned, may be excluded from the calculation of the required owner-occupancy percentage (should be removed from both the numerator and denominator). GUIDELINE CHANGES

*Information provided by HUD Mortgagee Letters A & B GUIDELINE CHANGES  Project Eligibility Requirements* The following requirements apply to all Condominium Project approvals: Minimum number of units: Projects must consist of two or more units. Insurance Coverage: Projects must be covered by hazard and liability insurance and, when applicable, flood and fidelity insurance (See Section VI, Insurance Requirements). Right of First Refusal: Right of first refusal is permitted unless it violates discriminatory conduct under the Fair Housing Act regulation at 24 CFR part100. Commercial Space: No more than 25 percent of the property’s total floor area in a project can be used for commercial purposes. The commercial portion of the project must be of a nature that is homogenous with residential use, which is free of adverse conditions to the occupants of the individual condominium units.

*Information provided by HUD Mortgagee Letters A & B GUIDELINE CHANGES No more than 10% of the units can be owned by a single entity. No more than 15% of the units can be 30 days or more delinquent on their HOA dues. Projects with 20 or more units must have fidelity insurance of 3 months HOA dues + reserves. Budget review – 10% replacement reserves + funding for all insurance and deductibles.

*Information provided by HUD Mortgagee Letters A & B Approval Process  Approval Processing Options* A. Lenders will have two condominium project approval processing options. The applicable documentation requirements will be the same for each option: 1. HUD Review and Approval Process (HRAP). 6-8 Weeks or more 2. Direct Endorsement Lender Review and Approval Process (DELRAP), outlined in this Mortgagee Letter. This option is only available to lenders who have unconditional Direct Endorsement authority and staff with knowledge and expertise in reviewing and approving condominium projects.

*Information provided by HUD Mortgagee Letters A & B Approval Process & Documents DOCUMENTS REQUIRED FOR FHA LEGAL APPROVAL EXISTING CONSTRUCTION NEEDS LIST DEFINITION OF EXISTING CONDOMINIUM: Buildings were constructed as Condominiums and all units, all common elements and improvements have been completed over one year. The original units remain unsold and the developer/sponsor may not have relinquished control of the condominium to the homeowners. Project must NOT be subject to further expansion at the option of the developer.

*Information provided by HUD Mortgagee Letters A & B Approval Process & Documents  1. LETTER OF REQUEST FOR PROJECT APPROVAL, this letter to include (a) the sponsors/builder/developer name, address and telephone number; (b) HOA Name; (c) the HOA address of project (city, county, state and zip code); (d) The total number of phases and units within project; (e) current status of construction; (f) description of project including type of structure(s), number of units and common facilities.  2. HOA CERTIFICATION FORM 921 – Must be current, fully completed and executed  3. ACTUAL HOA BUDGET – Budget must include allocations/line items to ensure sufficient funds are available to maintain and preserve all amenities and features unique to the condominium project; provides for the funding of replacement reserves for capital expenditures and deferred maintenance in an account representing at least 10% of the budget; and provides adequate funding for insurance coverage and deductibles. In lieu of the actual budget documents, mortgagees may request and rely on Fannie Mae Form 1073a, Analysis of Annual Income and Expenses – Operating Budget, executed by an authorized representative of the seller/servicer, owners association, or management agent.  4. FEMA FLOOD CERTIFICATION FORM – this document will be ordered by Project Underwriter.  5. RECORDED DECLARATIONS & any or all Annexations & Amendments that apply.

*Information provided by HUD Mortgagee Letters A & B Approval Process & Documents  6. EXECUTED AND ADOPTED BYLAWS  7. ARTICLES OF INCORPORATION- Filed with the State & HOA Tax ID Number.  8. RECORDED CONDO/PLAT MAP (NO LARGER THAN 11x17) indicating legal description  9. RECORDED CONDOMINIUM SITE PLANS  10. MANAGEMENT AGREEMENT, if applicable. If self managed, please submit a letter stating so.  11. PLAN OR EVIDENCE OF TRANSFER OF CONTROL – Letter from Developer/Builder on letterhead acceptable.  12. OUTSTANDING OR PENDING LITIGATION ANALYSIS, if applicable.  13. PENDING SPECIAL ASSESSMENTS ANALYSIS, if applicable.  14. CURRENT OWNER OCCUPANCY STATUS – At least 50% of the units in a project must be owner occupied or sold to owners who intend to occupy as a primary residence. Verification required in each insuring package. This can be a closing condition fulfillment to verify.

*Information provided by HUD Mortgagee Letters A & B Questions?