Condo Spot Approvals (again), Reserves, Time-Frames; Rate Volatility

RATE VOLATILITY

On Monday, a top producing loan officer/friend told me over dinner how much he loves the lack of volatility in the current rate environment.

He explained that it allows him to float (not lock in rates) for many of his borrowers until he has the time and capacity to process their loans.

But ironically, rates shot up a full 1/8% the very next day (yesterday).

Rates shot up for a variety of reasons including (1) Fed comments that downplayed recession concerns; (2) lackluster demand for bonds/mortgages; and (3) ECB comments about less “easing” or asset (bond) buying.

SO, while most everyone seems to expect rates to remain very low, yesterday showed once again that they can and will pop up at any time.

B/c of this our message remains the same: Get in while the gettin’ is good.

CONDO SPOT APPROVALS – RESERVES and REQUIRED TIME

Last week, I blogged about FHA Condo Approvals and how entire condo complexes no longer need to be FHA-approved for buyers wanting to use FHA financing.

RESERVES

I received a lot of feedback in response to the blog including numerous questions asking “what constitutes sufficient reserves?”

So, here is the partial definition from the HUD handbook…. “a reserve account for capital expenditures and deferred maintenance that is funded by 10% of the aggregate monthly Unit assessments, unless a lower amount is deemed sufficient based on an acceptable reserve study…”

That is not exactly clear as a bell, but suffice it to say that at least 10% of HOA dues need to go to a reserve fund that is large enough to cover “capital expenditures and deferred maintenance,” which of course is another nebulous number that is derived by industry standards, consultants, and myriad more regulations.

TIME REQUIRED FOR SPOT APPROVALS

HUD ain’t fast.

So when Spot Approvals are required, lenders will need at least 30 days to close (and possibly longer at first) b/c HUD/FHA will need to sign off on every Spot Approval request.

HUD is currently saying they will need anywhere from 30 to 60 days to sign off on all requests, but we suspect time-frames will improve once the initial onslaught of requests subsides.

30-day escrows were not a problem when HUD last allowed for Spot Approvals.

We will provide updates in October once we start to request Spot Approvals and see how things go.

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 01524255, NMLS# 310167

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