Understanding the Condo Project Review Process Understanding the Condo Project Review Reference Guide NEW PENN FINANCIAL ~ Learning & Development

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1 Understanding the Condo Project Review Process Understanding the Condo Project Review Reference Guide NEW PENN FINANCIAL ~ Learning & Development Presented by: Kevin Machinsky, Corporate Trainer

2 The need for Condo Project Review and the level of review needed is based on product, LTV, construction status (new vs. existing), and property type. The following table can be found in the UW Policies & Procedures within our Lending Library. Product Type Review Process Required Documentation Reviewer/ Approver HARP (DURP/LPOA) NPF UW Condo/PUD project cannot operate as Hotel/Motel or offer any type of hotel service. *No review needed for Detached PUDs -Adequate Insurance -DURP/LPOA HOA Certification completed by HOA Rep. My Community No Review Needed -Adequate Insurance N/A VA Projects must be VA Eligible prior to submitting to UW. *VA IRRRL do not need VA eligibility -Adequate Insurance NPF UW FHA Projects must be HUD Approved *FHA Streamline & Detached Condos do not need HUD Approval. *NPF will not issue DELRAP/HRAP Approvals; existing, unexpired OK -Adequate Insurance -FHA Approved Condo Questionnaire completed by HOA Rep. *FHA Streamline do not need questionnaire. NPF UW USDA Projects must be HUD Approved -Adequate Insurance NPF UW Conventional (Limited / Streamline Review) Permitted for: -Detached Condo (new or established project) -Attached Condo in an Established Project AND: Primary Home 80% LTV (FL 75%) FNMA Second Home 75% LTV (FL 70%) FNMA Primary Home < 90% LTV (FL 75%) FHLMC Second Home < 75% LTV (FL 70%) FHLMC No Investment Homes, Newly Constructed Attached Condos, Newly Converted projects, and NO Attached PUDs. -Adequate Insurance -Conventional Limited / Streamline Review HOA Questionnaire completed by HOA Rep. *If there is pending litigation against the HOA, the project must be reviewed by the Condo Project Review Team. NPF UW Page 1 of 9

3 Product Type Review Process Required Documentation Reviewer/ Approver Conventional (Full Lender /CPM Review) Jumbo Advantage / Home Buyer Power / Home Key Required for: -Attached Condo (new or recently converted project) -Attached Condo in an Established Project AND: Primary Home > 80% LTV (FL > 75%) FNMA Second Home > 75% LTV (FL > 70%) FNMA Primary Home > 90% LTV (FL > 75%) FHLMC Second Home > 75% LTV (FL > 70%) FHLMC -Any project with Pending Litigation against the HOA -Attached PUD s do require a full review; however, the review can be conducted by the underwriter using the PUD Questionnaire answer key. Attached PUD s are not required to be reviewed and approved by the Condo Project Review team. Full Lender / CPM Review is always required Non-Warrantable condos permitted -Adequate Insurance -Conventional Full Lender / CPM Review HOA Questionnaire completed by HOA Rep. -HOA Approved Budget for current fiscal year -Appraisal (Form 1073) w/photos -H06, Flood, and Fidelity Bond if applicable If project is new construction then ALSO need By Laws, CC&R, Articles of Incorp. Site Plans & Plat map Certificate of Occupancy -Adequate Insurance -Full Lender / CPM Review HOA Questionnaire completed by HOA Rep. -All Full Review docs listed previously. NPF Condo Project Review Team NPF Condo Project Review Team Special Note: Detached PUDs do not require any type of project review. Restrictions: 1. Non-Warrantable Condos only permitted by Portfolio products. 2. NPF will not submit for PERS Approval due to cost. Broker/Builders/Clients would have to obtain PERS approval directly from FNMA prior to NPF s review of the project. PERS approval is required for: - New/Newly converted attached condos in Florida - Newly converted Non-Gut Rehabs - New projects with units containing < 400 square feet - Projects with manufactured housing 3. Full Lender Review submissions may not be converted to Limited Review if the project is ineligible even if the borrower has the additional funds to qualify for Limited Review. Page 2 of 9

4 Service Level Agreements ~ Condo Project Review Team Initial review: hours Conditional Approval & Scenario Questions: hours FNMA Exceptions: 3 5 business days - No rush requests - $200 non-refundable fee must be approved by a manager prior to submission. - All outstanding conditions are required prior to submission. **No FHLMC Exceptions Rush Requests --Prior Approval must be granted by Credit Risk Manager (CRM) --Request must be sent to Condo Project Review Team --If approved, CRM will flag the request and it will be handled within 24 hours. Decisions Condo Project Review Team will render 1 of the 3 following decisions: 1. Approved project is eligible. 2. Declined project is ineligible. 3. Suspended additional docs required or a response on the questionnaire could impact eligibility. Either way, something else is needed for the project to be deemed eligible. If resubmitting to the Condo Project Review Team, all conditions must be submitted at the same time. Escalations - If the decision/conditions are being disputed, contact the CRM to discuss. Documentation Review NPF HOA Questionnaire must be completed by HOA Rep. only and within 45 days of CPM approval. There are 6 different questionnaires: --HUD FHA Condo Cert No revisions, updated responses, --DU Refi Plus Condo Cert corrections, cross-outs, ed --LP Open Access Condo Cert responses, or hand-written explanations. --Conventional Attached PUD Questionnaire If a true error is made, need LOX on HOA --Conventional Limited Streamline Review HOA Questionnaire letterhead explaining discrepancy. --Conventional Full Lender/CPM Review HOA Questionnaire **Homewisedocs.com and Condocerts.com online services are acceptable but the Condo Project Review team may require more information if necessary. Page 3 of 9

5 HOA Project Budget Condo Project Review Reference Guide must be final approved budget covering full 12 months, current year. --must indicate HOA/Project Name for validation purposes --must contain itemized breakdown of income, expenses, and reserves with total amounts for each section. No expired budgets, draft budgets, proposed budgets, editable budgets, or final budgets where the HOA / Project Name is not listed. --budget income should be from owner dues (builder contributions permitted until control is released to unit owners); other sources require written LOX on HOA letterhead. No Non-incidental income. HOA Reserves --at least 10% of total expenses allocated towards reserves --required to fund capital expenditures and deferred maintenance throughout fiscal year. --must be in operating account (Checking/Savings) and not secured funds. --funds for long-term replacement expenses should only be pulled from the Long Term reserve account without the need to implement Special Assessments. --No pooled reserves (must have separate allocation), --If there is a master/sub associations-cannot combine, --HOA can t alter budget based on lack of reserves. Allocation Exceptions to the 10% minimum requirement: Reserve Allocation 9% % - may be eligible for an exception with the HOA budget and current Financials/Bank Statements. Reserve Allocation 7% % - may be eligible for an exception with the HOA Budget, current Financials/Bank Statements and a Reserve Study from a third party reserve company dated within 2 years of the exception request date. Reserve Allocation < 7% or Budget shown not have a separate line item for Reserve Funds not eligible for exception review even with documentation listed above. HOA Master Insurance Policy --must contain building liability coverage --must account for 1 million dollars per occurrence (or min. required by state law) --must identify subject property address, borrower, correct mortgagee info and name HOA as insured. Page 4 of 9

6 Policy Verbiage Condo Project Review Reference Guide must read Guaranteed/100% Guaranteed Replacement Cost. --must read 100% of the insurance replacement cost of project improvements. --must contain evidence the extended Replacement Coverage is at least 100% of the replacement cost of project improvements. --If the policy includes a coinsurance clause, an Agreed Amount Endorsement must be provided. --Coinsurance cannot be < 100% coverage. --No Processor Certs to verify coverage on the Master Policy. --H06 is required when Master Policy doesn t cover interior walls of the units & must have Guaranteed Replacement Cost. --Fidelity Bond Covergae is required when project has more than 20 units. Condo Appraisal Reports --must be on Form 1073 with photos --info must match questionnaire --must indicate zoning to be Legal or Conforming New Construction --must obtain appraisal update/completion report prior to final CPM approval --must be substantially complete AND possess the CO and all units complete subject to buyer selection items being installed. --Site plans and Plat Map Newly Converted Condos Be sure to review the requirements within the Lending Library for all newly converted condos (converted within the last 3 years) Pending Litigation - If impacting the safety, structural soundness, habitability, or functional use of the project, pending litigation will cause a project to be ineligible. If impacting only Minor Matters, a project may be eligible for Full Lender review. Minor Matters are: --Non-monetary litigation involving neighbor disputes or rights of quiet enjoyment; --Litigation for which the claimed amount is known, the insurance carrier has agreed to provide the defense, and the amount is covered by the association s or co-op corporation s insurance. --HOA is named as plaintiff in a foreclosure action or action for past-due HOA dues. Page 5 of 9

7 Non-Warrantable Condos Non-warrantable condos are eligible within our Portfolio products. They are subject to Full Lender Review by the Condo Project Review Team and must adhere to the Non- Warrantable Condo Project Guidelines and/or Preferred Lender Status. The following table illustrates a summary of those guidelines as compared to Fannie Mae. FNMA Budget provides for the funding of replacement reserves for capital expenditures and deferred maintenance (at least 10% of the budget) plus adequate funding for insurance deductibles. Projects with non-incidental income are ineligible. No more than 20% of the total square footage of the project can be used for commercial purposes. No more than 15% of the total units in a project may be 30 days or more past due on their HOA dues. At least 70% of the total units in a new project / subject legal phase must have been conveyed or be under a bona fide contract for purchase to primary or second home purchasers. NPF Non-Warrantable Condos Budget provides for the funding of replacement reserves for capital expenditures and deferred maintenance (at least 5% of the budget) plus adequate funding for insurance deductibles. *If less than 10% replacement reserves, an independent reserve study completed within the last 2 years is required. Projects with non-incidental income are eligible, however no more than 25% of the income may be from nonincidental business operations if the total assessment income shown on the budget does not meet or exceed annual expenses. *If total assessment income does not meet/exceed annual expenses, HOA must provide LOE detailing the the nature of the income. No more than 40% of the total square footage of the project may be used for commercial purposes. No more than 25% of the total units in a project may be 30 days or more past due on their HOA dues. *A breakdown of the delinquent assessment fees must be provided by the HOA. At least 35% of the total units in a new project / subject legal phase must have been conveyed or be under a bona fide contract for purchase to primary or second home purchasers. Page 6 of 9

8 FNMA No single entity may own more than 10% of the total units in a project. Units owned by the developer that are currently subject to any lease arrangement must be included in the calculation. Units in a new project owned by the developer that are vacant and being marketed for sale are not included in the calculation. NPF Non-Warrantable Condos No single entity may own more than 10% of the total units in a project. *If the project has more than 10 units but less than 30, no single entity may own more than 3 of the total units in the project. If the project has less than 10 units, no single entity may own more than 1 unit in the project. Units owned by the developer that are currently subject to any lease arrangement must be included in the calculation. Units in a new project owned by the developer that are vacant and being marketed for sale are not included in the calculation. The project is 100% complete including all units and common elements. The project is a minimum 50% complete including units and common elements. *See UW Policies & Procedures for more details. Control of the Homeowner s Association has been turned over to the unit owners. Control of the Homeowner s Association may or may not have been turned over to the unit owners. Maximum Exposure may not exceed the lesser of $8 million or 25% of the total units in a project. The 25% exposure limit can only be exceeded if: The exposure is less than the current threshold and one more Non-Conforming (Jumbo) Loan will put the exposure over the threshold A Loan is a refinance or a purchase of a current loan that will replace a Loan already being used on the current exposure calculation. New Penn Financial has reviewed the project and elected to provide Preferred Lender Status. Page 7 of 9

9 Preferred Lender Status is necessary in two instances: 1.) New Penn s maximum exposure to a project has been exceeded (new or existing construction) 2.) New projects where less than 35% of the projects have been conveyed to the unit purchasers. In order to be considered for Preferred Lender Status the project must be in an approved metropolitan area and all other Non-Warrantable Condo guidelines must be met. Approved Metropolitan Areas: New York City Washington D.C. San Francisco Preferred Lender Status Documentation/Requirements: Projects are subject to a site inspection Current Reserve Study by a qualified, independent professional company complete within the last 2 years Budget must contain line items for reserves to adequately support the costs identified in the reserve study and a utility contingency of at least 10% of previous year s utility costs if the utilities are not separately metered. All rehabilitation work involved in a condo conversion must have been completed in a professional manner and be accompanied by an engineer's report, or functional equivalent and must comment favorably on the structural integrity of the project and the remaining useful life of the major project components. Funds to cover the total cost of any items identified in the reserve study or engineer's report that need to be replaced within five years from the date of the Page 8 of 9

10 study must be deposited in the HOA's reserve account, in addition to the amount stated immediately above. The project sponsor or developer must provide a comprehensive sales and marketing strategy. The developer must provide a detailed description of the work proposed or already completed in order for the project units to be ready for sale. Up to 30% of projects subject to rent regulations protecting tenants from eviction (if they have chosen not to purchase their unit), are permitted. Phasing of projects (single building or multiple buildings) will be considered on a project basis. Reminder: Reference Guides and Job Aids should never be your sole point of reference and should never take the place of the Product Profiles and NPF Polices & Procedures located within the Lending Library. Page 9 of 9