WASHINGTON — The Federal Housing Administration issued a proposal Tuesday that would make it easier for lenders to secure government guarantees for condominium loans.

The agency's plan would extend the recertification period for condo developments by one year to three and establish a new owner-occupancy requirement.

Currently the FHA requires 50% of condo units to be owner-occupied before it will approve a building and make it eligible for FHA financing.

"Through this proposed rule, FHA is specifically inviting comment on this issue and is proposing to establish an allowable range between 25% and 75%. The range allows the FHA to choose a specific percentage that is responsive to future market changes," the Department of Housing and Urban Development said in a press release.

While it appears to give the FHA plenty of flexibility, the National Association of Realtors is not pleased because it conflicts with changes called for in a housing reform bill passed by Congress earlier this year.

"HUD's proposed rule sets a wide potential range when compared with the 35% Congress suggested — a figure NAR believes is a more appropriate and productive threshold," Tom Salomone, the Realtor group's president, said in a statement on Tuesday. "HUD has the authority right now to set the owner-occupancy requirement at 35% while the regulatory process moves forward, and we would urge them to consider that option rather than defer the decision for an indeterminate amount of time."

HUD tightened the FHA condominium program after the housing bust. The proposal would open the door for the FHA to do so-called spot approvals, in which the agency could finance individual units in a condo building that has not been certified or approved for agency financing.

"While we will have to see the details, it should provide a real spark to the FHA condominium market and expand homeownership opportunities for first-time homebuyers," said Brian Chappelle, a mortgage consultant.

Scott Olson, the executive director of the Community Home Lenders Association, also welcomed the FHA's decision. "CHLA commends HUD for its proposed rule to re-instate the FHA condo spot approval process, along with other important condominium provisions — all steps that CHLA has supported in order to improve access to mortgage credit for FHA condominium loans," Olson said in a statement Tuesday.

HUD also signaled that it is setting up a direct endorsement program – called DELRAP — for experienced FHA condominium lenders.

"Once the mortgagee has completed at least five DELRAP reviews to FHA's satisfaction, the mortgagee will be granted unconditional DELRAP authority and may approve condominium projects in accordance with HUD's requirements," HUD said.

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