FHA and Fannie Mae CONDO GUIDELINE REVISIONS

1. FHA and Fannie Mae CONDO GUIDELINE REVISIONS Condo Project Guideline Changes You Need to Know Presented by: OrestTomaselli, CEO

2. FHA Condominium RoundtableWashington, D.C.: September 20th and 21st • Seminar Highlights • FHA data release • FHA concerns and focus • Investor concentration changes • Renter allowances • Commercial space waiver • Reserve Studies • Phase 1 environmental • Pre-sale reduction to 50% • Noise studies • Leasing restrictions • Lender environmental requirements • Association loan allowances • HOA delinquency increase • Upcoming flood insurance changes Significant Guideline Changes

3. Investor concentration/rental allowance changes The holy grail of sorts for condominium developers. This guideline allows a developer to retain units and provides an ability to rent units if market conditions require. 10% investor rule gone 50% can be tenant occupied Presale reduced to 50% from 51% for newly-converted non-gut rehab conversions

4. Investor concentration chart Pre-SalePercentage 30percent >30–35percent >35–40percent >40–45percent >45–50percent 50percent Owner-Occupancy Percentage 30percent >30–35percent >35–40percent >40–45percent >45–50percent 50percent InvestorPercentage Nomorethan30 percent Nomorethan30 percent Nomorethan35 percent Nomorethan40 percent Nomorethan45 percent 50percent

5. Commercial space waiver Thousands of developments now may qualify for FHA financing. This is a substantial victory for developers and existing developments with commercial percentages above 25% Two categories 25% to 35% and 35% to 50% Must be approved directly by HUD. Cannot submit through DELRAP Residential voting rights majority Reserve studies may be required to show division of components

6. Leasing restrictions No substantial changes of leasing restrictions were outlined within this guidance, however, HUD emphatically stated that they would be strictly enforcing these guidelines going forward. Expect lenders to be fully compliant. Can limit rental term but no less than 30 days Condominium associations cannot require a credit report Condominium association can require a check of the sexual offender list Cannot require board approval

7. Project certification: Attorney sign off: NO LONGER APPLICABLE! Theundersignedherebycertifiesthat: • Tothebestofmyknowledgeandbelief,the informationandstatementscontainedinthe condominiumprojectapplicationare trueandcorrect;and • Ihavereviewedthecondominiumprojectapplicationandinrelianceuponadvicegiven bymyattorney,itmeetsallState,andlocalcondominiumlaws;and • I havereviewedthecondominiumprojectapplicationanditmeetsallcurrentFederal HousingAdministration(FHA)condominiumapprovalrequirements;and • Ihavenoknowledgeofcircumstancesorconditionsthat might haveanadverse effecton theproject (includingbutnotlimitedtodefectsinconstruction;substantialoperational issues; or litigation, mediationorarbitrationissues). Title 18 U.S.C. 1014, provides in part that whoever knowingly and willfully makes or uses a document containing any false, fictitious, or fraudulent statement or entry, in any matter in the jurisdiction of any department or agency of the United States, shall be fined not more than $1,000,000 or imprisoned for not more than 30 years or both. In addition, violation of this or others may result in debarment and civil liability for damages suffered by the Department.

8. Lender Environmental Requirements • Expect serious oversight by lenders and HUD going forward. Builder Certifications will be investigated thoroughly by lenders and HUD staff. Noise study Reserve study Phase 1 ESA

9. Association Loans The major misunderstandings were cleared up on Association Loans at HUD’s roundtable discussions. An association loan does not mean an automatic rejection for FHA condo project approval. Not automatically rejected Allowed if it can be proven that the association loan does not adversely affect the development

10. HOA delinquency increase allowances • A tremendous victory for condominium advocacy groups. Although units in foreclosure must be counted towards the delinquency. The increase from 30 days to 60 days will certainly allow thousands of condominium developments to now be approved. Increased from 30 day delinquency calculation to 60 day delinquency calculations No more than 15% of homeowners can be delinquent by more than 60 days Waiver for 20% removed

11. Upcoming flood insurance guideline changes Properties in high-risk flood areas were only allowed $250,000 in coverage from NFIP in the event of a flood. Private insurance has no coverage limit. Expect many developments to seek removal from FEMA flood maps due to high insurance costs. Currently FEMA flood insurance has a maximum payout of $250,000 HUD will begin accepting private flood insurance in 12-18 months

12. FHA Data:Condo lending performance “We don’t want FHA lending in our condominium!” In our opinion the FHA should stand for Financially Healthy Association. 40,000 condominium developments are currently approved on the FHA project approval list Condominium loans are performing 3% better than all other property types Stringent guideline enforcement probable cause

13. What’s in the works at the FHA? Expect more lender oversight 2012 and 2013. The FHA seems to be coming down hard on enforcement. There’ll be no new mortgagee letters for quite some time Several conversations about going to a 5% down payment and possibly higher. It might be a big battle Larger down payments may be required on higher loan amounts