[Update 1: clarifies time line of the new guidelines] In a letter to lenders, the Federal Housing Agency (FHA) produced new guidelines that would constrict financing for condominiums. Since then, brokers and condo owners report that FHA financing for condos is going from a flood to a trickle. In a letter released Nov. 6, the FHA provided temporary guidance effective for all case numbers assigned on or after Dec. 7, 2009 through Dec. 31, 2009. The FHA provided the letter to address current housing market conditions. The spot approval process will be eliminated for all case numbers on or after Feb. 1, 2010 under the new guidelines. The FHA created the process, allowing consumers to purchase a unit in a non-approved condominium project that has limited FHA involvement. All current condominium project approvals will be invalid, except for projects approved on or after Oct. 1, 2008. Projects must be re-approved under the new options FHA provided and must be recertified every two years. The new guidelines outline the HUD Review and Approval Process (HRAP) and the Direct Endorsement Lender Review and Approval Process (DELRAP). DELRAP is only available to lenders who have unconditional direct endorsement authority and staff with experience in reviewing and approving projects. The project eligibility requirements changed as well – turning the wave of FHA financing on condo projects to a trickle, according to a letter from Candice Farthing of Essential Mortgage Company to clients. According to the letter, one investor may own no more than 10% of units. For two and three unit projects, no single investor may own more than one unit. No more than 15% of the total units can be more than 30 days past due on their condominium association fee payment. At least 50% of the units must be sold before any mortgage on a unit can be endorsed. However, the FHA will temporarily reduce the pre-sale requirement to 30%. The letter also states that the FHA will cap concentration. Projects of three or less units cannot have more the one FHA-insured unit, and projects of more than four cannot have more than 30% of total units insured by FHA. But temporarily, the FHA will increase its concentration requirement to 100% through the end of the year if the project meets all standards. “Getting projects back on the approved list will be a long and slow process. And until a project is approved, FHA financing is not an option,” according to the letter from Farthing. Case in point, one condo owner in Metairie, Louisiana, had a buyer for her condo committed. The condo survived the ravages of Katrina, but under the new guidelines, the condo must be reappraised for hurricane damage risk. An FHA appraiser is not available to reassess the condo for several months. The buyer walked, unable to qualify for another mortgage product. The owner plans to re-enter the condo into the rental market. Write to Jon Prior.