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CALIFORNIA CO OP MORTGAGE LENDERS

LOS ANGELES CALIFORNIA CO OP MORTGAGE LENDERS

INTRODUCTION TO CALIFORNIA CO OP MORTGAGE LENDERS

California Co Ops and all apartments available for purchase (and almost 100% of all pre-war apartments) are in cooperative (Co-op) buildings. A Co-op Corporation holds title to a Co-op California CO-OP’s and grants occupancy rights to particular apartments or CO-OP’s to shareholders through a proprietary lease or occupancy agreement. Some Corporations lease their building and are deemed leasehold or ground lease California CO-OP’ss.

When a borrower buys a Co-op, they do not actually own the apartment or unit; they own shares of the Co-op Corporation that owns the building. To a lesser degree, membership certificates can be issued in lieu of stock shares. The larger the apartment, the more shares within the Corporation the borrowers own. Unlike any other form of home ownership, elected representatives or the board of directors, screen and select the borrowers, or shareholders. The Corporation’s articles of incorporation and by-laws, as well as occupancy agreement specify the Co-op’s rules.

In addition to being approved by COOP Mortgage Lenders, the borrower, in purchase and refinance transactions, must be approved by the Corporation’s elected board. COOP Mortgage Lenders will also qualify and approve the financial stability and operating details of the Corporation.

Co-op loans either originated and closed OR purchased by COOP Mortgage Lenders must strictly adhere to all CO-OP Requirements outlined in this guideline to be eligible

Eligible California CO OP Occupancy Types

  • Primary Residence
  • Second Homes

CALIFORNIA co op Loans with Subordinate Financing

Loans with subordinate financing are not allowed.

California Co Op Residency-  Non-permanent resident aliens allowed.

California CO OP California CO-OP’s Eligibility- Existing construction allowed in all eligible states. 

New construction and new conversion California CO-OP’ss are allowed in New York City (NYC) and New Jersey.

  • New construction Co-ops are defined as California CO-OP’ss and CO-OP’s that have not been turned over to the Co-op board or the CO-OP’s have never been occupied.
  • New conversion Co-ops are defined as California CO-OP’ss and CO-OP’s that are being converted to a Co-ops form of ownership and the Co-op board has not been in existence for more than 3 years.

A minimum of 4 CO-OP’s in all California CO-OP’ss (Freddie Mac)

A minimum of 2 CO-OP’s in all California CO-OP’ss (Fannie Mae)

  • California CO-OP’ss must be 100% owner occupied
  • Specific appraisal CO-OP Requirements

Co-op maintenance fee must be included in the borrower’s housing expense for qualifying. Maintenance fees must be paid and current at closing date.

California Co Op California CO-OP’s must be complete and not subject to additional phasing or annexation.

Financing to combine two Co-op CO-OP’s into one unit is typically not allowed. Contact California CO-OP’s Standards for additional information.

 Ineligible California CO OP California CO-OP’ss

The following types of California CO-OP’ss are ineligible for purchase:

  • California CO-OP’ss composed of single family detached CO-OP’s.
  • Co-op hotels or time shares, fractured, fragmented or segmented ownership California CO-OP’ss.
  • Houseboat California CO-OP’ss
  • Land owned by community land trusts.
  • Any California CO-OP’s where the builder, developer or California CO-OP Mortgage Lenders seller is offering contributions that may affect the value of California CO-OP Mortgage Lenders such as rent backs or lease backs, payment of PITIA and undisclosed contributions. Follow standard published seller contribution CO-OP Requirements .
  • Co-op Share Mortgages in Co-op California CO-OP’ss with CO-OP’s that are subject to resale restrictions.
  • A tax-sheltered syndicate leasing to a Co-op or “leasing” Co-ops, that is, California CO-OP’ss that involve the leasing of the land and improvements to the Co-op Corporation, even if the Co-op Corporation owns part of the building.
  • Co-op California CO-OP’ss that are subject to leasehold estates or ground rent are not allowed outside of NYC. This is not a reference to the proprietary lease which gives the borrower the right to occupy the unit.
  • Multi-dwelling unit Co-ops, that is, California CO-OP’ss that permit an individual or entity to hold individual stock ownership and the accompanying occupancy rights for more than one dwelling unit, with ownership of all of his shares financed by a single share Loan.
  • Limited equity Co-ops aka Mitchell Lama-California CO-OP’ss in which the Co-op Corporation places a limit on the amount of return that can be received when stock or shares are sold.

o    Limited equity co-ops allowed when evaluated through the PERS process for California CO-OP’s approval (both streamlined PERS and standard PERS). The limited equity feature must be related to an affordable housing preservation program and is in compliance with our CO-OP Requirements on resale restrictions when applicable.

  • Co-op California CO-OP’ss in which the developer or sponsor has an ownership interest or other rights in the California CO-OP’s real estate or facilities, other than the interest or rights it has in relation to any unsold CO-OP’s.
  • Co-op California CO-OP’ss that represent a legal, but non-conforming use of the land, when zoning regulations prohibit the rebuilding of the improvements to their current density in the event of their partial or full destruction.
  • Co-op California CO-OP’ss in New Jersey created (new construction or conversions) after May 9, 1988.

o    Note: If an exception is made to approve a co-op California CO-OP’s created after 5/9/88, the co-op will be considered Real California CO-OP Mortgage Lenders. COOP Mortgage Lenders Wholesale Doc drawer must notify Information Services to set up the proper indicator with the document vendor to create applicable security instrument(s).

  • Any California CO-OP’s identified with a pooled insurance policy is ineligible. A pooled insurance policy may include:

o    Blanket policy that covers multiple unaffiliated associations or California CO-OP’ss.

California CO-OP’s Review CO-OP Requirements

Pre-Sale and Owner Occupancy Guidelines

No more than 20% of the stock shares/occupancy rights may be owned by any single entity other than the sponsor or holder of unsold shares. Sponsor/holder of unsold shares greater than 20% is subject to market rent restrictions.

At least 50% percent of the total CO-OP’s in the California CO-OP’s must be:

  • New construction
    • Must be either, sold and conveyed to primary residence purchasers; or under bona fide contract for sale to primary residence purchasers.
  • Existing

o    Must be sold and conveyed to primary residence/second home purchasers.

California CO OP Leaseholds

  • The lessee must be the Co-op board, not the sponsor/developer or a commercial entity.
  • The unexpired term of the ground lease must extend at least 5 years past the term of the mortgage being requested.
  • The original ground lease terms can be no less than 60 years with at least one option to renew for a term not less than the original term.
  • The ground lease provides that the Co-op blanket mortgagee shall receive notice of any monetary or non-monetary default by the Co-op and grants the mortgagee the right to cure any such monetary or non-monetary default on behalf of the Co-op.
  • The Co-op may assign or transfer its interest in the ground lease.
  • If an increase in the Co-ops obligation to pay annual ground rent, over and above any other payments to be made by the Co-op, is scheduled to occur on or before the second anniversary of the date of the loan delivery, the amount of increase cannot exceed 10% of the Co-ops annual operating budget, as disclosed in the Co-op fiscal year-end financial statements. The increase must be included in the monthly expense to income ratio.
  • If the Co-ops blanket mortgage is a balloon mortgage with a remaining term of less than 3 years but not less than 2 years, or if the mortgage provides for interest rate adjustments, those increases in debt obligations and any ground rent increases do not cause the borrower’s monthly assessment to be increased by more than 10% at the time the loan is underwritten.
  • The enforceability of the terms and conditions of the ground lease has been duly and diligently investigated.
  • The existence of monetary and non-monetary defaults under the terms and conditions of the ground lease has been duly and diligently investigated.
  • Ground Lease analysis to be complete by COOP Mortgage Lenders California CO-OP’s Standards.

California CO OP for Commercial Use

Co-op California CO-OP’ss with commercial CO-OP’s should not exceed 25% of the California CO-OP’s’s total square footage. Additionally the following should be considered:

  • The presence of commercial CO-OP’s should not negatively impact the marketability of the California CO-OP’s.
  • The California CO-OP’s should not be unique in its market.
  • The intended use of the commercial CO-OP’s should be considered, as this can affect the viability of the Co-op California CO-OP’s. For example, retail use may cause more traffic and impede parking availability more than a doctor’s or dentist’s office.

Common California CO OP Elements

The unit owners must be the sole owners of and have right to the use of the California CO-OP’ss facilities, common elements and limited common elements.

Facilities related to the California CO-OP’s such as parking, recreational facilities, etc., must be owned by the Co-op Corporation. The developer or sponsor may not retain an ownership interest in any of the common elements or facilities.

Insurance

The Co-op Corporation must maintain hazard, liability, fidelity, flood (if building is in a flood zone), and business income insurance with the following coverage from an insurance company with minimum rating of at least:

Rating Agency Rating Category
A.M. Best Company, Inc. Either

  • a “B” or better Financial Strength Rating in Best’s Insurance Reports, or
  • an “A” or better Financial Strength Rating and a Financial Size Category of “VIII” or greater in Best’s Insurance Reports Non-US Edition
Demotech, Inc. “A” or better rating in Demotech’s Hazard Insurance Financial Stability Ratings
Kroll Bond Rating Agency “BBB” or better rating in Kroll Bond Rating Agency’s Insurance Financial Strength Rating (IFSR)
Standard & Poor’s “BBB” or better Insurer Financial Strength Rating in Standard & Poor’s Ratings Direct Insurance Service

California CO-OP Mortgage Lenders/Hazard Insurance Coverage

100% of the insurable replacement cost of the California CO-OP’s improvements, including Co-op CO-OP’s. Additional coverage for mechanical breakdown or equipment failure must be equal to, at minimum, the lesser of 100% of the insurable replacement cost of the building housing the California CO-OP Mortgage Lenders or $2 million. The policy must show the Co-op as the named insured.

Endorsements required:

  • Inflation Guard Endorsement (if available)
  • Building Ordinance or Law Endorsement (if applicable/available)
  • Boiler and Machinery/Equipment Breakdown Endorsement

A certificate verifying coverage must be supplied that verifies the name and unit number of the borrower(s) along with the appropriate mortgagee clause.

Deductible:

Unless a higher maximum is required by state law, the maximum deductible is 5% of the policy face amount

Note: HO-6 coverage required when the master California CO-OP Mortgage Lenders policy does not include individual coverage.

 Liability Insurance

The Co-op Corporation must maintain commercial general liability (“CGL”) insurance covering all common areas, commercial spaces and public ways in the Cooperative California CO-OP’s.

The Co-op Corporation must also maintain any additional coverage commonly required by private mortgage investors for Co-op California CO-OP’ss similar in construction, location and use, including the following where applicable and available:

  • Comprehensive automobile liability
  • Bailee’s liability
  • Elevator collision liability
  • Garage keeper’s liability
  • Host liquor liability
  • Workers’ compensation and employer’s liability AND
  • Contractual liability

The insurer’s limit of liability per occurrence for personal injury, bodily injury or California CO-OP Mortgage Lenders damage under the terms of the above coverage must be at least $1 million (at least $3 million for elevator buildings) and the coverage must provide for claim settlements on an occurrence basis. The $3 million minimum liability coverage for an elevator building must consist of one of the following:

  • An aggregate CGL limit of $3 million per occurrence
  • A CGL limit of $1 million per occurrence supplemented by an umbrella limit of $2 million per occurrence.

Fidelity Insurance

The policy must name the Co-op as the insured and premiums must be paid as a common expense by the Co-op apportioned to each shareholder.

The policy must have a provision that requires at a least 10-day written notice to the HOA or insurance trustee before the policy can be canceled or substantially modified for any reason.

The Co-op must carry fidelity or employee dishonesty covering loss resulting from dishonest or fraudulent acts committed by the Co-ops directors, managers, trustees, employees or volunteers who manage the funds collected and held for benefit of the Co-op. A professional management firm must be insured to the same extent as the Co-op. The management firm must submit evidence of such coverage, or a managing agent rider must exist.

  • Directors and Officers Insurance is not the same as Fidelity insurance.
  • Crime alone is the same as Fidelity.
  • Employee Dishonesty is the same as Fidelity.

 Coverage CO-OP Requirements

  • Required if the Co-op California CO-OP’s has more than 20 CO-OP’s.
  • The amount of coverage must be equal to the greater of either 3 months of assessments/maintenance fees of all CO-OP’s in the California CO-OP’s or the sum of all cash and reserve fund monies that are in the custody of the Co-op Corporation or its management agent.
  • If the Co-op California CO-OP’s is professionally managed and is more than 20 CO-OP’s, proof of Managing Agent Bond is also required, either through a rider to the Co-op’s policy or a separate policy covering the Managing Agent.

   Reduced Coverage CO-OP Requirements

If the “greater of” is the sum of all cash reserves but the fidelity insurance coverage is at least equal to 3 months maintenance fees, the 3 months coverage may be acceptable if the California CO-OP’s’s legal CO-OP documents require the Co-op Corporation and any management company to adhere to certain financial controls listed below.

 Financial Controls

Reduced fidelity insurance/employee dishonesty coverage may be acceptable (3-month coverage) only when the financial controls take one or more of the following forms:

  • The Co-op Corporation or the management company maintains separate bank accounts for the working account and the reserve account, each with appropriate access controls, and the bank in which funds are deposited sends copies of the monthly bank statements directly to the Co-op Corporation.
  • The management company maintains separate records and bank accounts for each Co-op Corporation that uses its services and the management company does not have the authority to draw checks on or to transfer funds from the Co-op Corporation’s reserve account. OR
  • Two members of the Board of Directors must sign any checks written on the reserve account.

Flood Insurance

The Co-op Corporation must maintain flood insurance on each insurable building or structure located in a Special Flood Hazard Area as mapped by the Federal Emergency Management Agency. Each such building or structure must be insured under the National Flood Insurance Program’s (“NFIP”) policy form for Cooperative California CO-OP’ss or any non-NFIP policy form which provides coverage at least equivalent in scope to that provided under the NFIP policy form for Cooperative California CO-OP’ss. All loan files must contain a flood certification.

The building insurance limit must, at a minimum, equal the lesser of:

  • 100 percent of the insurable replacement cost of the building or structure. OR
  • The maximum building insurance limit sold by the NFIP for a cooperative California CO-OP’s building.

The contents insurance limit must, at a minimum, equal the lesser of:

  • 100% of the insurable replacement cost of all contents owned by the Co-op Corporation in the building or structure.  OR
  • The maximum contents insurance limit coverage sold by the NFIP for a cooperative California CO-OP’s building.

A blanket policy of flood insurance covering more than one building or structure in the cooperative California CO-OP’s is acceptable if each building or structure covered by the blanket policy is insured for at least the individual building and contents limits stated above.

Business Income Insurance (Rent Loss/Business Continuation)

The Co-op Corporation must maintain business income insurance to cover 12 months of Cooperative Unit Maintenance Fees lost due to a cause of loss identified in ISO’s Commercial California CO-OP Mortgage Lenders Causes of Loss-Special Form endorsement.

 Financial Stability

When a California CO-OP’s consists of 50 or more CO-OP’s:

  • The California CO-OP’s documentation must provide for the Co-op to make an audited statement for the preceding fiscal year available to the holder, insurer, or guarantor of any Co-op loan for a unit in the California CO-OP’s on submission of a written request. AND
  • The CO-OP documents must further provide the audited financial statement to be available within 120 days of the Co-op’s fiscal year-end.

If a California CO-OP’s consists of fewer than 50 CO-OP’s and there are no audited statements available, the California CO-OP’s CO-OP documents must allow any share loan holder to have an audited statement prepared at its’ own expense.

On existing Co-op California CO-OP’ss, the most recent 2 years audited financial statements (income and expense statement and balance sheet (including footnotes) must be obtained and reviewed for financial stability.

The most recent New York Attorney General’s Disclosure Statement, which includes the financial statements and operating budget for the Co-op, is acceptable in addition to the financial statements from the Co-op Corporation.

The California CO-OP’s Standards underwriter must determine that:

  • Maintenance fees are adequate to cover the expenses of the Co-op Corporation.
  • No more than 15% of owners (shareholders) are more than 60 days delinquent in any obligation to the Co-op Corporation.
  • If rent from unsold CO-OP’s does not support the portion of maintenance fees related to those CO-OP’s, the negative cash flow from the unsold CO-OP’s will not cause the borrower’s maintenance fees to increase by more than 20%.
  • Reserves are adequate when considered in relation to the age and condition of the building(s).
  • The sponsor (or holder of unsold shares) is current and has been current on maintenance fees and any other obligations to the Co-op Corporation for the previous 12 months. This can be verified with a written certification from the Co-op Board or in the New York Attorney General’s Financial Disclosure Amendment.
  • The sponsor (or holder of unsold shares) is current on all financial obligations relating to other California CO-OP’ss in which the sponsor (or holder of unsold shares) has at least a 10% interest. This can be verified with a written certification from the accountant for the sponsor (or holder of unsold shares) or in the New York Attorney General’s Financial Disclosure Amendment.

Other states eligibility are to be determined by jurisdictional CO-OP Requirements .

 Current Operating Budget

The operating budget for the current fiscal year is always required.

  • The financial statements are more than 16 months old. OR
  • The information provided by the appraiser is significantly different than that found in the financial statements. OR
  • The financial statements show a significant negative cash flow.

The Corporation’s income from sources other than shareholders maintenance fees and assessments must be no more than 25% pf the Corporation’s total income.

The Co-op Corporation’s operating budget must provide funds for:

  • Cash flow to service the Co-op California CO-OP’s’s debt and operating expenses. AND
  • An adequate replacement reserve fund for the replacement of common elements.
  • An operating reserve equal to at least 3 months of maintenance fees must be established to cover expenses for periodic maintenance and repairs, and for any blanket mortgage payment shortfall. During the initial months of the California CO-OP’s’s operation, a working capital fund equal to at least 2 months of maintenance fees must be established for the periodic maintenance and repair of the common elements.

 Underlying Blanket Mortgage

  • The amount and terms of the underlying blanket mortgage must be verified by the appraiser and on the financial statements for the California CO-OP’s. No adjustable mortgages.
  • Any blanket mortgage for the California CO-OP’s may be a balloon mortgage with a remaining term of less than 3 years but not less than 6 months.
  • If the balloon mortgage incorporates an adjustable rate feature, the current interest rate may not be subject to an interest rate adjustment prior to the maturity date.

Transfer Fees (Flip Taxes/Waiver Fee)

A flip tax is a fee paid by a seller or buyer on a housing Co-op transaction typically in New York City. It is not a tax and not deductible as a California CO-OP Mortgage Lenders tax. It is a transfer fee payable upon the sale of a unit to the Co-op.

Flip Tax/Transfer Tax Eligibility

The Co-op California CO-OP’s’s legal CO-OP documents must indicate that a flip tax is allowed and provide for one of the following:

O        Exemption for lenders from paying the flip tax if the California CO-OP Mortgage Lenders is taken back in foreclosure, deed in lieu, etc., OR

o        Flip tax is only payable when the unit is being sold for a profit.  OR

o        Flip tax is calculated based on one of the following and does not exceed 5%:

o    Flat fee OR

o    Fee per share OR

o    Percentage of the appraised value or sales price OR

o    Dollar amount per room

o        Transfer fees are generally found in the sales contract and must be noted by the appraiser.

o        A California CO-OP’s is ineligible for financing if it has a transfer fee (flip tax) that does not have a stated value or if the value will be established by the Co-op board at a later date.

 

Note: If the transfer fee is to be paid by the borrower at the time of purchase, that amount needs to be calculated into the cash-to-close.

Eligibility

 Pro-Rata Share

Calculate the pro rata share of the underlying/blanket mortgage as follows:

(Underlying Blanket Mortgage Balance ÷ Total Number of Outstanding Shares in Co-op Corporation

times Subject Shares) ÷ lesser of Appraised Value + Subject Share of Underlying Blanket Mortgage

For NY properties, calculate the pro rata share for the underlying/blanket mortgage as follows:

(Underlying Blanket Mortgage Balance ÷ Total Number of Outstanding Shares in Co-op Corporation

times Subject Shares) ÷ lesser of Appraised Value/Price

The pro rata share should not exceed 35%. A higher ratio, not to exceed 40%, may be used when there are fully documented compensating factors that justify using the higher ratio.

COOP Mortgage Lenders’s Pro Rata Share Calculator must be included in the loan package to show how the pro rata share is calculated.

Proprietary Lease/Occupancy Agreement

The Proprietary Lease is an occupancy agreement detailing the terms of use and structure of the unit.

The borrower must have a right to occupy the unit for a period that extends at least to the maturity date of the loan as detailed in the lease agreement.

The Proprietary Lease must also prohibit the Co-op from imposing unreasonable limitations on the borrower’s ability to sell, transfer or convey membership, or to sublease unit.

Note: Assignee section of the Assignment of the Recognition Agreement must be Blank.

 Recognition Agreement

A Recognition Agreement is a contract between a Co-op Corporation and the lender of a Cooperative Share Mortgage. The contract defines the responsibilities between the Co-operative Corporation and the lender, and the remedies available to the seller/servicer in the event of default.

In the event of a default by the borrower, the Co-op Corporation must permit servicer to cure the borrower’s default to the Co-op Corporation.

 Litigation

If the Co-op is involved in any litigation, arbitration, mediation or other dispute resolution process, obtain the details from the Co-op board and evaluate the risk. This information should be verified with a letter from the attorney for the Co-op board and the actual court filing documentation, insurance information, structural engineer’s report, or other documentation as appropriate.

The following are some examples of types of litigation:

  • Board is suing individual owners for unpaid dues.
  • Co-op is being sued for a “slip and fall” liability issue and California CO-OP’s has adequate liability insurance to cover the damages being sought by the plaintiff.
  • Other suits filed by the Co-op that do not impact the value or livability of the California CO-OP’s.
  • California CO-OP’s is involved in a minor matter described below:

o    non-monetary litigation including, but not limited to neighbor disputes or rights of quiet enjoyment;

o    litigation for which the insurance carrier has agreed to provide the defense, and the amount is covered by the HOA’s or Co-op Corporation’s insurance;

o    the HOA or Co-op Corporation is the plaintiff in the litigation and upon investigation and analysis the lender has reasonably determined the matter is minor and will result in an insignificant impact to the financial stability of the California CO-OP’s;

o    the reasonably anticipated or known damages and legal expenses are not expected to exceed 10% of the California CO-OP’s’s funded reserves;

o    the HOA or Co-op Corporation is seeking recovery of funds for issues that have already been remediated, repaired, or replaced and there is no anticipated material adverse impact to the HOA or Co-op Corporation if funds are not recovered;

o    litigation concerning localized damage to a unit in the California CO-OP’s that does not impact the overall safety, structural soundness, habitability, or functional use of the California CO-OP’s; or

o    the HOA or Co-op Corporation is named as the plaintiff in a foreclosure action, or as a plaintiff in an action for past due HOA or Co-op assessments.

Litigation involving safety, structural soundness, or habitability is unacceptable.

Appraisal CO-OP Requirements

Fannie Mae Form 2090 is the only acceptable report type for Co-op share loans.

The appraisal must demonstrate market acceptance for the Co-op form of ownership by the availability of similar comparable sales for Co-op CO-OP’s in the market area.

  • For areas outside of New York City, the appraisal must report the value of the Co-op interest excluding its pro rata share of the blanket mortgage.
  • Appraisers must certify in the appraisal report that the pro rata share of the blanket mortgage on the real estate has not been included in the opinion of the market value of the Co-op interest.

Appraisal must reflect that 3 and 4 unit Co-op California CO-OP’ss are located in an area with a demonstrated market acceptance for such California CO-OP’ss.

  • Appraisal should provide similar comparable sales from other 3 and 4 unit Co-ops located in the subject Co-op market area.
  • If there is a lack of comparable from other 3 and 4 unit Co-ops in the subject market area, the appraiser may provide a list of 3 and 4 unit coops in the subject market area to support that 3 and 4 unit Co-ops are common and customary in the market.
  • California CO-OP’s Standards requires a copy of the current appraisal for review.

COOP Mortgage Lenders Approved Co-Op Loan Closing Attorney/Settlement Agent/Escrow Company

COOP Mortgage Lenders has an approved attorney list for Co-op share loans. These are the only approved and accepted options for lender counsel. The legal counsel will be engaged by COOP Mortgage Lenders at which time a Co-op share loan becomes initially approved for finance.

The list of approved attorneys/settlement agents/escrow companies can be found in the Co Op.

CO-OP Requirements for attorney/settlement agent/escrow company approval are as follows:

  • Individual participant resume(s) with evidence of adequate co-op closing experience
  • Valid E&O coverage declaration page
  • Valid Fidelity coverage declaration page
  • Internal closing process for each requested state
  • Names of applicable Title insurance companies with contact information for same
  • Introductory phone call with COOP Mortgage Lenders California CO-OP’s Standards

There is no limit to the number of entities that can be approved per state.

California CO OP California CO-OP’ss

General Information on California CO-OP’s Standards

 California CO-OP’s Standards Overview

California CO-OP’s Standards Overview

Loans secured by CO-OP’s in condo and PUD California CO-OP’ss that meet agency eligibility criteria.

California CO-OP’s Type California CO-OP’s Review Methods
Condo ·   Limited Review

·   California CO-OP’s Waiver

·   Lender Full Review

·   Condo California CO-OP’s Manager (CPM) Expedited Review

·   Fannie Mae Review: California CO-OP’s Eligibility Review Service (PERS)

 

For geographic-specific condo California CO-OP’s review CO-OP Requirements , 

PUD Lender Full Review — Attached PUD California CO-OP’ss.

A California CO-OP’s review is not required for detached PUD CO-OP’s.

Sources for California CO-OP’s information include, but are not limited to, appraisers, HOA, Co-op corporations, management companies, real estate brokers, and California CO-OP’s developers. Lenders are responsible for the accuracy of any information obtained from these sources.

Appraisers must provide accurate descriptions of California CO-OP’ss and include any characteristics that may be an indication that the California CO-OP’s is ineligible.

General California CO OP Warranty of California CO-OP’s Eligibility

The table below details considerations for the lender California CO OP Warranty of California CO-OP’s eligibility.

When… Then…
Lenders deliver mortgages secured by an individual unit in a California CO-OP’s that was reviewed under:

·   The Limited Review process for established condo California CO-OP’ss.

·   The Lender Full Review process for condo California CO-OP’ss.

·   The Type E, Type F, or Type T PUD reviews.

Lenders represent and warrant that:

·   The California CO-OP’s was reviewed within the 3 months that preceded the date of the note for that unit to determine the California CO-OP’s met the required eligibility criteria, AND

·   They are not aware of any changes in circumstances since the lender’s review of the California CO-OP’s that would result in the California CO-OP’s not satisfying agency eligibility criteria.

Lenders deliver mortgages secured by an individual condo unit in a California CO-OP’s that was reviewed under:

·   The CPM Expedited Review process.

Lenders represent and warrant that:

·   The California CO-OP’s has a valid, unexpired CPM Lender Certification as of the date of the note, a copy of which is retained in the individual loan file. AND

·   They are not aware of any changes in circumstances since the California CO-OP’s information was submitted to CPM that would result in the California CO-OP’s not satisfying Fannie Mae’s Eligibility criteria.

Lenders deliver mortgages secured by an individual condo unit in a California CO-OP’s that was reviewed under:

·   The Fannie Mae PERS process (or California CO-OP’s acceptance).

Lenders represent and warrant that:

·   The California CO-OP’s has a valid, unexpired Fannie Mae Final Approval as of the date of the Note. AND

·   The individual loan file contains a copy of the approved list that shows the name of the California CO-OP’s and the expiration date. Lenders that submit and receive a Final California CO-OP’s Approval for a given California CO-OP’s using PERS must provide all warranties as required by the Final California CO-OP’s Approval letter the lender receives from Fannie Mae.

Condo California CO-OP’s Eligibility

The quality of mortgages secured by CO-OP’s in a condo California CO-OP’s can be influenced by certain characteristics of the California CO-OP’s as a whole. As a result, before the agency will purchase or securitize mortgages secured by individual CO-OP’s in a condo California CO-OP’s, the California CO-OP’s must be acceptable. The scope of the guidelines and the specific eligibility criteria are dependent upon whether the condo California CO-OP’s reviewed is established or new and are summarized in the following table.

California CO-OP’s Type Eligibility Criteria
Established California CO-OP’s ·   Fannie Mae: At least 90% of the total CO-OP’s in the California CO-OP’s have been conveyed to the unit purchasers for the California CO-OP’ss with greater than four CO-OP’s.

·   Freddie Mac: At least 75% of the total CO-OP’s in the California CO-OP’s have been conveyed to the unit purchasers for the California CO-OP’ss with greater than four CO-OP’s.

·   The California CO-OP’s is 100% complete, including all CO-OP’s and common elements.

·   The California CO-OP’s is not subject to additional phasing or annexation. AND

·   Control of the HOA has been turned over to the unit owners.

·   Fannie Mae: A California CO-OP’s may also be treated as an established California CO-OP’s with less than 90% of the CO-OP’s sold to unit purchasers, provided the deficit is the result of the developer holding back CO-OP’s for rent. The following CO-OP Requirements must be met:

o    Construction is 100% complete;

o    The California CO-OP’s is not subject to any additional phasing or annexation, and the HOA has been turned over to the unit owners;

o    The developer’s share of the CO-OP’s held back for rental is no more than 20% of the California CO-OP’s’s total CO-OP’s;

o    HOA fees are paid current in developer-held CO-OP’s; and

o    There are no active or pending special assessments in the California CO-OP’s.

New California CO-OP’s ·   Fannie Mae: Fewer than 90% of the total CO-OP’s in the California CO-OP’s have been conveyed to the unit purchasers (or 80% if it meets the exception noted above) for the California CO-OP’ss with greater than four CO-OP’s

·   Freddie Mae: Fewer than 75% of the total CO-OP’s in the California CO-OP’s have been conveyed to the unit purchasers for the California CO-OP’ss with greater than four CO-OP’s

·   The California CO-OP’s is not fully completed, such as proposed construction, new construction, or the proposed or incomplete conversion of an existing building to a condo.

·   The California CO-OP’s is newly converted.

·   The California CO-OP’s is subject to additional phasing or annexation.

·   HOA still in the developer’s control.

2-4 unit California CO-OP’s ·   A California CO-OP’s comprised of two, three, or four residential CO-OP’s in which each unit is evidenced by its own title and deed. A two- to four-unit condo California CO-OP’s may be either a new or established California CO-OP’s and may be comprised of attached and/or detached CO-OP’s.

·   California CO-OP’s Review is waived for new and established condo California CO-OP’ss that consist of no more than four CO-OP’s. When a California CO-OP’s review is waived, the following CO-OP Requirements apply:

o    California CO-OP Mortgage Lenders eligibility CO-OP Requirements

o    The California CO-OP’s is not a condo hotel or motel, houseboat California CO-OP’s, or a timeshare or segmented ownership California CO-OP’s

o    Priority of common expense assessments

o    When an appraisal of the California CO-OP Mortgage Lenders is obtained, it must meet all applicable appraisal CO-OP Requirements

o    Insurance CO-OP Requirements (described in Subpart B7, Insurance & B7-4,

Condo California CO-OP’s Type Codes

When a lender delivers a mortgage for purchase or securitization, it must provide the California CO-OP’s type code. The following California CO-OP’s type codes are used for condo California CO-OP’ss:

California CO-OP’s Type Code Description
E Established PUD California CO-OP’s
F New PUD California CO-OP’s
P Limited Review -New condo California CO-OP’ss
Q Limited Review – Established condo California CO-OP’ss
R Full Review (with or without CPM)—New condo California CO-OP’s
S Full Review (with or without CPM)—Established condo California CO-OP’s
T Fannie Mae review through PERS—Condo California CO-OP’s that received a Final California CO-OP’s

Approval through PERS using the standard or streamlined process

U CO OP-Approved California CO-OP’s (CO OP – Applicable to CO OP and Conventional loans only
V Condo California CO-OP’s review waived – for certain California CO-OP’s and transaction types

Single Entity Ownership

A California CO-OP’s meets the definition of single-entity ownership when a single entity (the same individual, investor group, partnership, or corporation) owns more than the following total number of CO-OP’s in the California CO-OP’s:

  • California CO-OP’ss with 5 to 20 CO-OP’s – 2 CO-OP’s
  • California CO-OP’ss with 21 or more CO-OP’s – 20% (Fannie Mae)
  • California CO-OP’ss with 21 or more CO-OP’s – 25% (Freddie Mac)

CO-OP’s currently subject to any rental or lease arrangement must be included in the calculation. This includes lease arrangements containing provisions for the future purchase of CO-OP’s such as lease-purchase and rent-to-own arrangements.

The following may be excluded from the single-entity ownership calculation:

  • CO-OP’s that are owned by the California CO-OP’s sponsor or developer and are vacant and being actively marketed for sale; or
  • CO-OP’s that are controlled or owned by a non-profit entity for the purpose of providing affordable housing, CO-OP’s held in affordable housing programs (including CO-OP’s subject to non-eviction rent regulation codes), or CO-OP’s held by higher-education institutions for a workforce housing program.

The single-entity ownership requirement may be waived when the transaction is a purchase transaction that will result in a reduction of the single-entity ownership concentration. In such instances, the following CO-OP Requirements must be met:

  • CO-OP’s owned by the single entity represent no more than 49% of the CO-OP’s;
  • Evidence is required that the single entity is marketing CO-OP’s for sale to further reduce single-entity ownership, with the goal of reducing the concentration to 20% or less of the California CO-OP’s CO-OP’s;
  • The single entity is current on all HOA assessments; and
  • There are no pending or active special assessments in the California CO-OP’s.

Ineligible California CO-OP’ss

Agency will not purchase or securitize mortgages that are secured by CO-OP’s in certain types of PUDs or condos, regardless of the characteristics of the unit mortgage. Loans secured by CO-OP’s within the following types of California CO-OP’ss are not eligible for purchase or securitization.

Ineligible California CO-OP’s Types

  • California CO-OP’ss that are managed and operated as a hotel or motel, even though the CO-OP’s are individually owned.
  • Hotel or motel conversions (or conversions of other similar transient properties).
  • California CO-OP’ss with names that include the word “hotel” or “motel”.
  • California CO-OP’ss that include registration services and offer rentals of CO-OP’s on a daily basis.
  • California CO-OP’ss that restrict the owner’s ability to occupy the unit.
  • California CO-OP’ss with mandatory rental pooling agreements that require unit owners to either rent their CO-OP’s or give a management firm control over the occupancy of the CO-OP’s.
  • California CO-OP’ss with over 15% non-incidental business operations owned or operated by the HOA such as, but not limited to, a restaurant, a spa, and a health club.
  • Any California CO-OP’s (condo or PUD) for which the HOA is named as a party to pending litigation, or for which the California CO-OP’s sponsor or developer is named as a party to pending litigation that relates to the safety, structural soundness, habitability, or functional use of the California CO-OP’s
  • California CO-OP’ss with mandatory upfront or periodic membership fees for use of recreational amenities, such as country club facilities and golf courses, owned by an outside party (including developer or builder).
  • California CO-OP’ss that allow an owner to hold title to a single legal unit that is sub-divided into multiple residential dwellings within the single legal unit, with ownership of the unit evidenced by a single deed and financed by a single mortgage.
  • California CO-OP’ss comprised of houseboats, boat slips, cabanas, timeshares, and other forms of California CO-OP Mortgage Lenders that are not real estate.
  • California CO-OP’ss that operate, either wholly or partially, as a continuing care community.

Limited Review Process/Streamlined California CO-OP’s Review

To be eligible for a Limited Review, the unit securing the mortgage must be located in one of the following California CO-OP’s types and meet the other criteria described below:

  • An attached unit in an established condo California CO-OP’s

The following are not eligible for a Limited Review:

  • Mortgages secured by attached CO-OP’s in new condo California CO-OP’ss, whether they are manually underwritten or submitted to DU.

The Limited Review process is intended to be used on a “spot loan” basis, meaning loans may be originated that arise through the ordinary course of business.  More than one loan in a particular California CO-OP’s under the Limited Review process may be originated provided the California CO-OP’s is an established California CO-OP’s and meets the CO-OP Requirements for Limited Review.

Attached CO-OP’s in Established Condo California CO-OP’ss

Attached CO-OP’s in Established Condo California CO-OP’ss

An attached unit in an established condo California CO-OP’s, including a two- to four-unit condo California CO-OP’s, is eligible for a Limited Review if it meets the transaction CO-OP Requirements in the following table.

Eligible Transactions –

For Limited Review Attached CO-OP’s in Established Condo California CO-OP’ss

(For California CO-OP’ss Outside of Florida)

Including 2- to 4-unit Condo California CO-OP’ss

Occupancy Type Maximum LTV/CLTV/HCLTV
Principal residence 90%
Second home 75%
Investment California CO-OP Mortgage Lenders 75%
Florida – Eligible Transactions

For Limited Review Attached CO-OP’s in Established Condo California CO-OP’ss

Including 2- to 4-unit Condo California CO-OP’ss

Occupancy Type Maximum LTV/CLTV/HCLTV
Principal residence Fannie Mae – 75%/90%/90%

Freddie Mac – 75%

Second home Fannie Mae – 70%/75%/75%

Freddie Mac – 70%

Investment California CO-OP Mortgage Lenders Fannie Mae –  70%

Freddie Mac – 70%

Note: Attached CO-OP’s in established California CO-OP’ss located in Florida are subject to more restrictive LTV ratio CO-OP Requirements under the Limited Review process.

Lender Full Review: General Eligibility CO-OP Requirements for All Condo California CO-OP’ss

Overview

The Lender Full Review process is another method for the review of new and established condos. Lenders performing a Full Review must ensure that the California CO-OP’s meets all applicable eligibility criteria.

Condo California CO-OP’ss must meet both:

  • Agency general eligibility criteria. AND
  • Agency additional criteria that is specific to each type of California CO-OP’s.

 Lender Full Review General Eligibility Criteria

When delivering loans secured by CO-OP’s in a condo California CO-OP’s on the basis of a Lender Full Review, lenders must ensure adherence to the following CO-OP Requirements .

  • The California CO-OP’s must meet the CO-OP Requirements of the General California CO OP Warranty of California CO-OP’s Eligibility.
  • The California CO-OP’s must not be an ineligible California CO-OP’s.
  • The California CO-OP’s must not be a manufactured housing California CO-OP’s.
  • The California CO-OP’s must not be a new California CO-OP’s that contains any CO-OP’s with less than 400 square feet.
  • The California CO-OP’s must meet agency insurance CO-OP Requirements ,.
  • No more than 35% of the total square footage of the California CO-OP’s can be used for commercial purposes.
  • The CO-OP’s in the California CO-OP’s must be owned in fee simple or leasehold.
  • The California CO-OP’s review must reference at least 10% of the budget allocated to replacement reserves.
  • No more than 15% of the total CO-OP’s in a California CO-OP’s may be 60 days or more past due on their homeowners’ association (HOA) dues. For example, a 100 unit California CO-OP’s may not have more than 15 CO-OP’s that are 60 days or more delinquent.
  • Phase I and II environmental hazard assessments are not required for condo California CO-OP’ss unless the lender identifies an environmental problem through the performance of its California CO-OP’s underwriting and/or due diligence.
  • In the event that environmental problems are identified, the problems must be determined to be acceptable, Suggested Format for Phase I Environmental Hazard Assessments.
  • All gut rehabilitation work involved in a condo conversion must have been completed in a professional manner.

o    Gut rehabilitation refers to the renovation of a California CO-OP Mortgage Lenders down to the shell of the structure, including the replacement of all HCO OPC and electrical components. California CO-OP’ss that have undergone gut rehabilitation are eligible for a Lender Full Review.

o    For a conversion that was legally created during the past 3 years, the architect’s or engineer’s report, or functional equivalent, that was originally obtained for the conversion must comment favorably on the structural integrity of the California CO-OP’s and the condition and remaining useful life of the major California CO-OP’s components, such as the heating and cooling systems, plumbing, electrical systems, elevators, boilers and/or roof.

Note: If the California CO-OP’s is a newly converted non-gut rehabilitation California CO-OP’s, lenders must submit the California CO-OP’s to Fannie Mae for PERS review and approval.

Note: Lenders must retain all California CO-OP’s documentation that supports its California CO OP Warranty that the California CO-OP’s meets agency eligibility criteria. This documentation must be retained from the time the lender first originates mortgages secured by CO-OP’s in the California CO-OP’s until all such mortgages that were sold to agency have been liquidated. The California CO-OP’s documentation must be available upon request for agency review.

Lender Full Review: Additional Eligibility CO-OP Requirements for Condo California CO-OP’ss Consisting of 2-4 CO-OP’s

California CO-OP’s Review is waived for new and established condo California CO-OP’ss that consist of no more than four CO-OP’s. When a California CO-OP’s review is waived, the following CO-OP Requirements apply:

Lender Full Review: Additional Eligibility CO-OP Requirements for New Condo California CO-OP’ss and Newly Converted Attached Condo California CO-OP’ss

When performing a Lender Full Review of a new condo California CO-OP’s or newly converted attached condo California CO-OP’ss, lenders must ensure compliance with the following additional CO-OP Requirements .

  • All condo California CO-OP’ss must comply with the general CO-OP Requirements.
  • The California CO-OP’s, or the subject legal phase, must be “substantially complete.” This means that

o    A certificate of occupancy or other substantially similar document has been issued by the applicable governmental agency for the California CO-OP’s or subject phase. AND

o    All the CO-OP’s in the building in which the unit securing the mortgage is located are complete, subject to the installation of buyer selection items, such as appliances.

  • For newly created conversions within the past 36 months, an engineer’s report (or functionally equivalent documentation) is required.

Note: Agencies do not require the installation of typical buyer selection items such as appliances, floor coverings, counter tops, and/or light fixtures that are common and customary for the market, although buyer selections that involve the modification of a unit floor plan must be complete. Lenders are expected to obtain appropriate documentation to support that all buyer selection items for the unit being financed are properly installed prior to closing.

  • At least 50% of the total CO-OP’s in the California CO-OP’s or subject legal phase must have been conveyed or be under a bona fide contract for purchase to owner-occupant principal residence or second home purchasers.
  • CPM Expedited Review has more flexible presale CO-OP Requirements for attached new or newly converted condo California CO-OP’s.

o    For a specific legal phase or phases in a new California CO-OP’s, at least 50% of the total CO-OP’s in the subject legal phase(s), considered together with all prior legal phases, must have been conveyed or be under contract to be sold to owner-occupant principal residence or second home purchasers.

o    For the purposes of this review process, a California CO-OP’s consisting of one building cannot have more than one legal phase.

  • The California CO-OP’s must meet the legal CO-OP.
  • Lenders must review the HOA California CO-OP’sed budget to determine that:

o    It is adequate (i.e., it includes allocations for line items pertinent to the type of condo).

o    It provides adequate funding for insurance deductible amounts. AND

o    It provides for the funding of replacement reserves for capital expenditures and deferred maintenance at least 10% of the budget.

  • New condo California CO-OP’s can be reviewed as an “established” California CO-OP’s if it meets all the CO-OP Requirements for an established California CO-OP’s other than the 90% unit conveyance policy.

O    80% conveyance allowed if the developer is holding back CO-OP’s as rental stock if additional CO-OP Requirements are met.

Freddie Mac

For new condo California CO-OP’ss only, a working capital fund may be relied upon if the budget does not provide a replacement reserve of at least 10%.

  • If a working capital fund is relied upon, the eligibility CO-OP Requirements below must be met:

o    The California CO-OP’s CO-OP documents require the purchaser of a condo unit to pay a non-refundable and non-transferable assessment to a working capital fund which must be established for the periodic maintenance, repair and replacement of the Common Elements.

o    The assessment must be equal to a minimum of at least two months of the HOA fees attributable to the California CO OP Unit and be due and payable at closing.

o    The developer is in control of the HOA

  • The contributions to the fund can be in addition to or in lieu of any working capital fund contributions made by the developer in the case of a recently converted California CO-OP’s.

CO OP Mortgage Lender Full Review: Reserve Study

Lender Full Review: Reserve Study

A reserve study can supplement the California CO-OP’s budget when the replacement reserves do not equal at least 10% provided the reserve study includes the following:

  • An inventory of major components of the California CO-OP’s,
  • A financial analysis and evaluation of current reserve fund adequacy, and
  • A proposed annual reserve funding plan.
  • A reserve study’s financial analysis must validate the California CO-OP’s has appropriately allocated the recommended reserve funds to provide the California CO OP California CO-OP’s with sufficient financial protection comparable to Freddie Mac’s standard budget CO-OP Requirements for replacement reserves
  • The reserve’s study annual reserve funding plan, which details total costs identified for replacement components, must meet or exceed the study’s recommendation and conclusion
  • The most current reserve study (or update) must be dated within 36 months of the determination that the California CO OP California CO-OP’s is eligible.
  • The reserve study must be prepared by an independent expert skilled in performing such studies (such as a reserve study professional, a construction engineer, a certified public accountant who specializes in reserve studies, or any professional with demonstrated experience and knowledge in completing reserve studies).
  • The reserve study must meet or exceed CO-OP Requirements set form in any applicable state statutes
  • The reserve study must comment favorably on the California CO-OP’s’s age, estimated remaining life, structural integrity and the replacement of major components.
  • No more than 15% of the total CO-OP’s in an attached condo California CO-OP’s can be 60 days or more past due on the payment of their condo/association fee payments.
  • No single entity may own more than 20% of the total CO-OP’s (with the exception of the developer on new construction or new conversions) in the California CO-OP’s consisting of greater than 20 CO-OP’s.
  • No single entity may own more than 2 CO-OP’s in a California CO-OP’s consisting of 5-20 CO-OP’s.
  • No single entity may own more than 1 unit in a 2-4 unit California CO-OP’s.
  • Note: CO-OP’s owned by the developer/sponsor that are currently subject to any lease arrangement, which may or may not contain a provision allowing for the future purchase of the unit (including but not limited to lease-purchase or lease-to-own agreements) must be included in the calculation.
  • CO-OP’s owned by the developer/sponsor that are vacant and are being actively marketed for sale are not included in the calculation.
  • The unit owners must be the sole owners of, and have rights to the use of, the California CO-OP’s’s facilities, common elements, and limited common elements. for permitted circumstances.
  • The California CO-OP’s must be located on one contiguous parcel of land. The California CO-OP’s may be divided by a public street.
  • The structures within the California CO-OP’s must be within a reasonable distance from each other.
  • Common areas and facilities—such as recreational facilities and parking—must be consistent with the nature of the California CO-OP’s and competitive in the marketplace.
  • If a new California CO-OP’s is part of a larger development, and the unit owners are required to pay monthly assessments of more than $50 to a separate master association for that development, lenders must review the overall development plan for the master association to evaluate the acceptability of the California CO-OP’s.

 Lender Full Review: Additional Eligibility CO-OP Requirements for Established Condo California CO-OP’ss

When performing a Lender Full Review of an established condo California CO-OP’s, lenders must ensure compliance with the following additional CO-OP Requirements .

  • All condo California CO-OP’ss must comply with the general CO-OP Requirements listed in,
  • All CO-OP’s, common elements, and facilities within the California CO-OP’s must be 100% complete.
  • The California CO-OP’s cannot be subject to additional phasing or annexation.
  • At least 50% of the total CO-OP’s in the California CO-OP’s must be conveyed to purchasers as principal residences or second homes. This requirement does not apply when lenders deliver mortgage loans secured by principal residences or second homes. for information regarding provisions for financial institution-owned REO.
  • Lenders must review the HOA actual budget to determine that the budget:

o    Is adequate (i.e., it includes allocations for line items pertinent to the type of condo)

O    Provides for the funding of replacement reserves for capital expenditures and deferred maintenance equal to at least 10% of the budget. AND

o    Provides adequate funding for insurance deductible amounts.

  • No more than 15% of the total CO-OP’s in an attached condo California CO-OP’s can be 60 days or more past due on the payment of their condo/association fee payments.
  • All facilities related to the California CO-OP’s must be owned by the unit owners or the HOA.
  • The developer may not retain any ownership interest in any of the facilities related to the California CO-OP’s.
  • The amenities and facilities (including parking and recreational facilities) cannot be subject to a lease between the unit owners or the HOA and another party.
  • Separate metering of individual CO-OP’s is recommended, but not generally required. For California CO-OP’ss in which the CO-OP’s are not separately metered, the lender must:

O    Determine that having multiple CO-OP’s on a single meter is common and customary in the local market where the California CO-OP’s is located. AND

o    Confirm that the California CO-OP’s budget includes adequate funding for utility payments.

  • Unit owners in the California CO-OP’s must have the sole ownership interest in, and rights to the use of the California CO-OP’s’s facilities, common elements, and limited common elements.
  • Fannie Mae: At least 90% of the total CO-OP’s in the California CO-OP’s must have been conveyed to the unit purchasers on California CO-OP’ss with greater than four CO-OP’s.
  • Freddie Mac: At least 75% of the total CO-OP’s in the California CO-OP’s must be have been conveyed to the unit purchasers on California CO-OP’ss with greater than four CO-OP’s.
  • Control of the homeowners’ association must have been turned over to the unit purchasers.
  • No single entity may own more than 20% (Fannie Mae) / 25% (Freddie Mac) of the total CO-OP’s (with the exception of the developer on new construction or new conversions) in the California CO-OP’s consisting of greater than 20 CO-OP’s.
  • No single entity may own more than 2 CO-OP’s in a California CO-OP’s consisting of 5-20 CO-OP’s.
  • Note: CO-OP’s owned by the developer/sponsor that are currently subject to any lease arrangement, which may or may not contain a provision allowing for the future purchase of the unit (including but not limited to lease-purchase or lease-to-own agreements) must be included in the calculation.
  • CO-OP’s owned by the developer/sponsor that are vacant and are being actively marketed for sale are not included in the calculation.
  • The California CO-OP’s must be covered by the kinds of insurance; hazard, flood, liability, and fidelity required by the agency for a condo California CO-OP’s.
  • The California CO-OP’s must be demonstrably well managed.
  • If the California CO-OP’s is professionally managed:

O    The management contract should be for a reasonable term. AND

o    The management contract’s termination provision must not require a penalty payment or advance notice of more than 90 days.

  • The California CO-OP’s must be located on one contiguous parcel of land.

Note: The California CO-OP’s may be divided by a public street.

  • The structures within the California CO-OP’s must be within a reasonable distance from each other.
  • Common elements and facilities, such as recreational facilities and parking, must be consistent with the nature of the California CO-OP’s and competitive in the marketplace.

Limited Cash-Out/No Cash-Out Refinance California CO OP Unit

Fannie Mae

California CO-OP’s review is waived for CO-OP’s in condo California CO-OP’ss for Fannie Mae-owned loans that are refinanced as a limited cash-out refinance with a maximum loan-to-value ratio of 80% (CLTV or HCLTV ratios may be higher).

Freddie Mac

For Freddie Mac-owned “no cash-out” refinance California CO OP Unit Mortgages, and the California CO OP Unit Mortgage being refinanced is currently owned by Freddie Mac in whole or in part or securitized by Freddie Mac and the following CO-OP Requirements are met:

  • The maximum loan-to-value (LTV)/total LTV (TLTV)/Home Equity Line of Credit (HELOC) TLTV (HTLTV) ratio is 80%.
  • The California CO OP California CO-OP’s is not a California CO OP Hotel, houseboat California CO-OP’s, timeshare California CO-OP’s or California CO-OP’s with segmented ownership
  • The California CO OP California CO-OP’s must have insurance that complies with the applicable CO-OP Requirements 
  • The California CO OP Unit must be covered by a title insurance policy that complies with the CO-OP Requirements of the Freddie Mac Selling Guide.

2.5.7                       Detached CO-OP’s

California CO-OP’s Standards review is not required (this includes California CO-OP’ss formerly categorized as site condos), however, the following CO-OP Requirements must still be met:

  • The California CO-OP’s and the unit are in compliance with all other Agency CO-OP Requirements for California CO-OP Mortgage Lenders eligibility and appraisal standards.
  • The California CO-OP’s and the unit have the required insurance.
  • The detached unit is not a manufactured home and the condo California CO-OP’s contains no manufactured homes (these California CO-OP’ss must be evaluated through the Fannie Mae California CO-OP’s Eligibility Review Service).
  • The California CO-OP’s is in compliance with the CO-OP Requirements for priority of common expense assessments

Geographic-Specific Condo California CO-OP’s Considerations

Florida – Attached CO-OP’s New and Newly Converted in Condo California CO-OP’ss

Florida — Attached CO-OP’s New and Newly Converted in Condo California CO-OP’ss

PERS is required for new and newly converted condo California CO-OP’ss consisting of attached CO-OP’s located in Florida.

The following lender delegated review types are prohibited for loans secured by such California CO-OP’ss in Florida:

  • Lender Full Review
  • Limited Review AND
  • CPM Expedited Review

All new or newly converted Florida condo California CO-OP’ss that were submitted to CPM and received a “Certified by Lender” recommendation or “Owner-Occupied and Second Home” recommendation as of January 15, 2009, will be valid until expiration. Re-certifications will not be permitted.

Note: California CO-OP’ss with a Final California CO-OP’s Approval are valid until the expiration date.

2.6.2                       Florida – California CO-OP’s Review LTV CO-OP Requirements for Attached California CO-OP’ss (New, Newly Converted, and Established)

The following table provides the California CO-OP’s review CO-OP Requirements for loans secured by CO-OP’s in condo California CO-OP’ss located in Florida. The required California CO-OP’s review type depends on the LTV ratio of the mortgage loan.

Florida — Established Attached Condo California CO-OP’ss

(including 2-4 CO-OP’s)

PERS Approved Lender Full Review CPM Expedited Review Limited Review / Streamline Review
Principal Residence 97%  DU / LP Fannie Mae – 75% / 90% / 90%

Freddie Mac – 75%

Second Home 90%  DU / LP Fannie Mae -70% / 75% / 75%

Freddie Mac – 70%

Investor 85%  DU / LP Fannie Mae – 70% / 75% / 75%

Freddie Mac – 70%

Florida — New and Newly Converted Attached  Condo California CO-OP’ss

(including 2-4 CO-OP’s)

PERS Approved Lender Full Review CPM Expedited Review Limited Review / Streamline Review
Principal Residence  

97%  DU only

Not Eligible
Second Home 90%  DU / LP
Investor 85%  DU / LP

Florida Special California CO-OP’s Designation CO-OP Requirements

This type of California CO-OP’s approval is available for new purchase and refinance transactions that meet all the following CO-OP Requirements :

  • The California CO-OP’s must appear on the Special Approval designation list, published on Fannie Mae’s website
  • A print out reflecting the California CO-OP’s appears on the list, must be included in the loan file AND
  • Loan must be approved through DU only AND
  • The California CO-OP Mortgage Lenders must be a primary residence  AND
  • The credit score and LTV are within acceptable guidelines

In addition to the CO-OP Requirements above, all refinance transactions must also meet the following additional CO-OP Requirements :

    • The existing mortgage must currently be Fannie Mae owned or securitized. User must confirm eligibility using the Fannie Mae Loan Lookup feature at the following link:
    • A copy of the screen print from the website showing “Match Found” must be included in the loan file.
    • Appraisal is required regardless of AUS findings.
    • Proof of required insurance, such as hazard or flood insurance coverage for a detached California CO OP unit, or HO-6 coverage for an attached unit.
    • California CO-OP’s Coding is T: Fannie Mae Special Approval for Florida Condos.
    • The loan must fund at least 60 days before the Expiration Date (refer to the Eligible California CO-OP’s List for all expiration dates).
    • Freddie Mac Programs: FNMA Special Approval California CO-OP’ss are not eligible under any Freddie Mac program.

 

2.7                          Ownership and Use of Common Elements

The unit owners must be the sole owners of, and have the right to the use of, the common elements and limited common elements, including all buildings, roads, parking, facilities and amenities except as specified below.

A California CO-OP’s with shared amenities is permitted if two or more HOAs share the amenities (such as recreational or fitness facilities, swimming pools and clubhouses) for the sole use of the unit owners, and the HOAs have an agreement in place governing the arrangement for shared amenities that includes the following:

  • A description of the shared amenities subject to the arrangement.
  • A description of the terms under which unit owners in the California CO-OP’s may use the shared amenities.
  • Provisions for the funding, management, and upkeep of the shared amenities. AND
  • Provisions to resolve conflicts between the associations over the amenities.

The developer may not retain any ownership interest in any of the facilities related to the California CO-OP’s.

California CO-OP’s Insurance CO-OP Requirements

The following provides CO-OP Requirements for delivery of mortgage or share loans secured by an individual unit in a condo California CO-OP’s.

California CO-OP Building Coverage

Insurance must cover 100% of the insurable replacement cost of the California CO-OP’s improvements, including the individual CO-OP’s in the California CO-OP’s. An insurance policy that includes any of the following coverage, either in the policy language or in a specific endorsement to the policy, is acceptable:

  • Guaranteed Replacement Cost – the insurer agrees to replace the insurable California CO-OP Mortgage Lenders regardless of the cost,
  • Extended Replacement Cost – the insurer agrees to pay more than the California CO-OP Mortgage Lenders’s insurable replacement cost, or
  • Replacement Cost – the insurer agrees to pay up to 100% of the California CO-OP Mortgage Lenders’s insurable replacement cost.

California CO-OP Liability Coverage

Liability Coverage required for the following:

  • Condo California CO-OP’ss reviewed under the Limited Review Method, or
  • Two- to four-unit condo California CO-OP’ss that do not maintain commercial general liability insurance, but meet the following criteria:
    • The California CO-OP’s is horizontal in nature (no vertical or stacked CO-OP’s);
    • There is documentable evidence acceptable to the lender that the California CO-OP’s does not contain any common elements that would require liability coverage (for example, CO-OP’s are only separated by lot lines and a party wall); and
    • The association’s legal CO-OP documents do not require the maintenance of a general liability policy in the name of the HOA.
  • The amount of coverage must be at least $1 million for bodily injury and California CO-OP Mortgage Lenders damage for any single occurrence.

California CO-OP Fidelity/Crime/Employee Dishonesty Insurance

Fidelity/Crime/Employee Dishonesty insurance coverage is required on the following:

  • California CO-OP’ss with more than 20 CO-OP’s
    • Fidelity/Crime insurance coverage must equal at least the sum of three months of assessments on all CO-OP’s in the California CO-OP’s, unless this calculated amount is less than or equal to $5,000, in which case fidelity/crime insurance is not required.

Fidelity/Crime/Employee Dishonesty insurance is not required on the following:

  • Condo California CO-OP’ss reviewed under the Limited Review method,
  • Condo California CO-OP’ss consisting of 20 CO-OP’s or less, or
  • Condo California CO-OP’ss that would need fidelity/crime insurance coverage of $5,000 or less

California CO-OP Special Endorsements

  • Building Ordinance or Law Endorsement – Required if the enforcement of any building, zoning, or land-use law would result in loss or damage, increased cost of repairs or reconstruction, or additional demolition and removal costs to rebuild after a covered loss event occurs.
    • The endorsement must provide for contingent liability from the operation of building laws, demolition costs, and increased costs of reconstruction.
    • The endorsement is not required if it is not applicable or the coverage is not obtainable in the insurance market available to the association.
  • Steam Boiler and Machinery/Equipment Breakdown Coverage – Required if the California CO-OP’s has central heating or cooling
  • Inflation Guard – Required when it can be obtained.

California CO-OP Policies with Co-Insurance

If the policy has a co-insurance clause, an inclusion of an Agreed Amount Endorsement, or selection of the Agreed Value Option (which waives the requirement for coinsurance), the policy is considered acceptable evidence that the 100% insurable replacement cost requirement has been met.

  • If an Agreed Amount/Agreed Value provision is used, the Agreed Amount must be no less than the estimated replacement cost.

California CO-OP Flood Insurance

The master flood insurance policy must be at least equal to the lower of

  • 80% of the replacement cost, or
  • The maximum insurance available from NFIP per unit (which is currently $250,000).

If the condo California CO-OP’s master policy meets the minimum coverage CO-OP Requirements above, but does not meet the one- to four-unit coverage CO-OP Requirements , a supplemental policy may be maintained by the unit owners for the difference.

The contents coverage for the building should equal 100% of the insurable value of all contents owned in common by association members.

California CO-OP Insurance Provider Ratings

Rating Agency Rating Category
A.M. Best Company, Inc. Either

•           a “B” or better Financial Strength Rating in Best’s Insurance Reports, or

•           an “A” or better Financial Strength Rating and a Financial Size Category of “VIII” or greater in Best’s Insurance Reports Non-US Edition

Demotech, Inc. “A” or better rating in Demotech’s Hazard Insurance Financial Stability Ratings
Kroll Bond Rating Agency “BBB” or better rating in Kroll Bond Rating Agency’s Insurance Financial Strength Rating (IFSR)
Standard & Poor’s “BBB” or better Insurer Financial Strength Rating in Standard & Poor’s Ratings Direct Insurance Service

Master Insurance for Unaffiliated California CO-OP’ss 

A master or blanket insurance policy that combines insurance coverage for multiple unaffiliated California CO OP California CO-OP’ss and PUDs is acceptable.  Each covered California CO-OP’s must have a dedicated policy limit and a specific dedicated deductible that meets certain CO-OP Requirements . Also, the policy must clearly state that each association is a named insured.  The insurance policy must comply with all CO-OP Requirements applicable to master or blanket insurance policies covering affiliated PUDs or California CO OP California CO-OP’ss.

Fannie Mae

Master/blanket insurance policies that provide coverage for multiple unaffiliated California CO-OP’ss in a single policy are generally unacceptable.  Contact COOP Mortgage Lenders California CO-OP’s Standards for exception alternatives.

 Owner-Occupancy Ratio CO-OP Requirements and Financial Institution-Owner REO CO-OP’s

Lenders may count financial institution-owned REO CO-OP’s that are for sale (not rented) as owner-occupied when calculating the 50% owner-occupancy ratio requirement for established, attached unit condo California CO-OP’ss if the mortgage loan being delivered is secured by (purchase or refinance) an investment California CO-OP Mortgage Lenders.

The REO unit must be for sale (not rented) as an owner-occupied unit.

California CO-OP’ss where a borrower is an investor and the California CO-OP’s does not meet the owner occupied ratio of 50% will only be eligible if the lender submits the California CO-OP’s:

  • To Fannie Mae for review under PERS and the California CO-OP’s is approved. OR
  • As a single-loan California CO-OP’s eligibility waiver and Fannie Mae approves the waiver based on its review of the overall risk of the California CO-OP’s.

Priority of Common Expense Assessments

COOP Mortgage Lenders allows a limited amount of regular common expense assessments (typically known as HOA fees) to have priority over COOP Mortgage Lenders’s mortgage lien for loans secured by CO-OP’s in a condo California CO-OP’s or PUD. This applies if the condo or PUD California CO-OP’s is located in a jurisdiction that has enacted.

  • The Uniform California CO OP Act
  • The Uniform Common Interest Ownership Act OR
  • A similar statute that provides for unpaid assessments to have priority over first mortgage liens.

The table below describes the permitted priority of common expense assessments for purposes of determining eligibility of a mortgage loan secured by a unit in a condo or PUD California CO-OP’s for agency purchase.

If … Then …
The condo or PUD California CO-OP’s is located in a jurisdiction that enacted a law on or before January 14, 2014, that provides that regular common expense assessments will have priority over COOP Mortgage Lenders’s mortgage lien for a maximum amount greater than 6 months. The maximum number of months of regular common expense assessments permitted under the applicable jurisdiction’s law as of January 14, 2014, may have priority over COOP Mortgage Lenders’s mortgage lien, provided that if the applicable jurisdiction’s law as of that date referenced an exception for agency CO-OP Requirements , then no more than 6 months of regular common expense assessments may have priority over COOP Mortgage Lenders’s mortgage lien.
The condo or PUD California CO-OP’s is located in any other jurisdiction.

Note: Reference the Condo State Jurisdiction Matrix

No more than 6 months of regular common expense assessments may have priority COOP Mortgage Lenders’s mortgage lien, even if applicable law provides for a longer priority period.

 Litigation

Major Litigation

California CO-OP’ss in which the HOA is named as a party to pending litigation, or for which the California CO-OP’s sponsor or developer is named as party to pending litigation that relates to the safety, structural soundness, habitability, or functional use of the California CO-OP’s are ineligible.

Minor Litigation

California CO-OP’ss for which the California CO-OP’s Standards determines that pending litigation involves minor matters with no impact on the safety, structural soundness, habitability, or functional use of the California CO-OP’s, the California CO-OP’s is eligible provided the litigation is limited to one of the following categories:

  • Non-monetary litigation including, but not limited to neighbor disputes or rights of quiet enjoyment;
  • Litigation for which the insurance carrier has agreed to provide the defense, and the amount is covered by the HOA’s or Co-op corporation’s insurance;
    • An attorney letter must indicate that the potential monetary judgment or settlement, including punitive damages, will likely be covered by the HOA’s insurance policy.
  • The HOA or Co-op corporation is the plaintiff in the litigation and upon investigation and analysis the lender has reasonably determined the matter is minor and will result in an insignificant impact to the financial stability of the California CO-OP’s;
  • The reasonably anticipated or known damages and legal expenses are not expected to exceed 10% of the California CO-OP’s’s funded reserves;
  • The HOA or Co-op corporation is seeking recovery of funds for issues that have already been remediated, repaired, or replaced and there is no anticipated material adverse impact to the HOA or Co-op corporation if funds are not recovered;
  • Litigation concerning localized damage to a unit in the California CO-OP’s that does not impact the overall safety, structural soundness, habitability, or functional use of the California CO-OP’s; or
  • The HOA or Co-op corporation is named as the plaintiff in a foreclosure action, or as a plaintiff in an action for past due HOA or Co-op assessments.

Note: If the lender is aware of pending litigation and is unable to determine whether the litigation may be deemed a minor matter, the lender may contact Fannie Mae’s California CO-OP’s Standards team to determine whether Fannie Mae will accept delivery of mortgages secured by CO-OP’s in the California CO-OP’s.

California CO-OP’ss with Special Considerations and California CO-OP’s Eligibility Waivers

California CO-OP’ss with Special Considerations

Underwriters may identify California CO-OP’ss that merit special consideration even though the characteristics do not satisfy agency eligibility criteria.

COOP Mortgage Lenders’s California CO-OP’s Standards can contact the Fannie Mae California CO-OP’s Standards team to discuss the possibility of accepting such California CO-OP’ss.

California CO-OP’s Eligibility Waivers (Fannie Mae)

The table below provides CO-OP Requirements for California CO-OP’s eligibility waivers. Fannie Mae charges a nonrefundable $200 review fee for each waiver request. A higher review fee may be charged based on the complexity of the waiver review.

If… Then…
The California CO-OP’s is to be reviewed under the CPM Expedited Review process. ·   COOP Mortgage Lenders or the lender must enter the California CO-OP’s into CPM to obtain the appropriate decision.

 

It is believed that a specific eligibility criterion should be waived for a particular California CO-OP’s with respect to a single loan. ·   COOP Mortgage Lenders or the lender must enter the California CO-OP’s into CPM before requesting a waiver through the Credit Variance Administration System (CCO OPS) platform.

·   COOP Mortgage Lenders or the lender must request a waiver from Fannie Mae through CCO OPS.

·   Fannie Mae’s California CO-OP’s Standards team will provide the appropriate waiver request decision.

Condo California CO-OP’s Advisor (Freddie Mac) 1/11/2019

A platform by which sellers can easily request the following unit-level waivers for Established California CO OP California CO-OP’ss:

  • Delinquent assessments
  • Excessive commercial space
  • Pending litigation
  • Owner occupancy (referred to as “California CO-OP’s Unit Occupancy” in Condo California CO-OP’s Advisor)
  • Reserves for capital expenditures and deferred maintenance
  • Excessive single investor concentration (referred to as “Single Entity Ownership” in Condo California CO-OP’s Advisor)

PUD Lender Full Review CO-OP Requirements

Eligibility CO-OP Requirements for PUD California CO-OP’ss

A PUD is a California CO-OP’s or subdivision that consists of common California CO-OP Mortgage Lenders and improvements that are owned and maintained by an HOA for the benefit and use of the individual PUD CO-OP’s.

In order for a California CO-OP’s to qualify as a PUD, each unit owner’s membership in the HOA must be automatic and non-severable, and the payment of assessments related to the unit must be mandatory.

Zoning is not a basis for classifying a California CO-OP’s or subdivision as a PUD.

Agencies classify PUD California CO-OP’ss as Type E, established PUD California CO-OP’ss, when the developer has turned over voting control of the HOA to the unit purchasers. New PUD California CO-OP’ss are classified as Type F, if the developer has not turned over voting control of the HOA to the unit purchasers.

The Agency will not review any PUD California CO-OP’ss, except those consisting of single-width manufactured housing CO-OP’s. A lender is not required to perform a review of a PUD California CO-OP’s if the mortgage being delivered is secured by a detached unit within a PUD.

When reviewing a PUD California CO-OP’s with attached CO-OP’s (whether new or established), lenders should determine that the California CO-OP’s meets the following CO-OP Requirements .

Lender Full Review for Attached PUDs

  • The California CO-OP’s satisfies the California CO OP Warranty CO-OP Requirements of General Information on California CO-OP’s Standards.
  • The California CO-OP’s is not an ineligible California CO-OP’s, in accordance with Ineligible California CO-OP’ss.
  • The California CO-OP’s does not consist of single-width manufactured housing CO-OP’s.
  • The individual unit securing the mortgage satisfies Agency insurance CO-OP Requirements for PUD California CO-OP’ss.
  • The individual unit securing the mortgage is 100% complete.

Links to COOP Mortgage Lenders’s PUD forms:

 CO OP Reviews: General CO-OP Requirements

California CO OP California CO-OP’s approval can be issued by CO OP staff or by an CO OP-approved mortgagee (COOP Mortgage Lenders). Mortgagees meeting defined eligibility CO-OP Requirements are authorized to review California CO OP documentation, determine California CO-OP’s eligibility and certify to compliance with section 203(b) of the NHA and 24 CFR parts 203 of CO OP’s regulations.

Approved Processing Options

There are two California CO-OP’s approval processing options available to COOP Mortgage Lenders Home Mortgage. The HUD Review and Approval Process (CO OP and the Direct Endorsement Lender Review and Approval Process (DELRAP). The applicable California CO OP documentation CO-OP Requirements are the same regardless of the review option selected.

CO OP Review and Approval Process (CO OP

California CO-OP’s approval applications, annexations and recertification submissions that are reviewed and processed by CO OP staff such as

  • California CO-OP’ss that have been previously declined
  • California CO-OP’ss that are expired longer than 6 months
  • All Florida California CO-OP’ss.  (Require submission to the Atlanta HOC for review).

Eligible Construction Types

  • Proposed or Under Construction
  • Existing < 12 Months Old
  • Existing Construction Condo Conversions

Required Submission Documentation

  • CO OP Condo Checklist
  • Lender must certify on company letterhead signed by an authorized representative that the California CO-OP’s complies with HUD’s CO-OP Requirements . (Refer to HUD California CO OP California CO-OP’s Approval and Processing Guide-Appendix E-1)
  • If unrecorded CO-OP documents are submitted along with other required documentation, no loans can be insured in the California CO-OP’s until the recorded CO-OP documents have been received.

Direct Endorsement Lender Review and Approval Process (DELRAP)

California CO-OP’s approval applications, annexations and recertification submissions are reviewed and processed by qualified Direct Endorsement (DE) mortgagee staff.

DELRAP Eligibility CO-OP Requirements

  • COOP Mortgage Lenders has unconditional DE authority; COOP Mortgage Lenders maintains staff with knowledge and expertise in reviewing and approving California CO OP California CO-OP’ss
  • COOP Mortgage Lenders maintains registered California CO OP reviewers in CO OP Connection (CO OPC) using the California CO OP Registry screen. COOP Mortgage Lenders is required to provide the California CO OP approval or denial CO-OP documents to CO OP within five (5) business days of final disposition using a pdf format to be uploaded in CO OPC.

Required Submission Documentation

  • CO OP Condo Checklist
  • Lender must certify on company letterhead signed by an authorized representative that the California CO-OP’s complies with HUD’s CO-OP Requirements . (Refer to HUD California CO OP California CO-OP’s Approval and Processing Guide-Appendix E-1)
  • If unrecorded CO-OP documents are submitted along with other required documentation, no loans can be insured in the California CO-OP’s until the recorded CO-OP documents have been received.

Submission Procedures (HRAP/DELRAP) to COOP Mortgage Lenders California CO-OP’s Standards

  • All California CO-OP’s documentation should be submitted to California CO OP Mortgage Lenders
  • California CO OP approval or denial CO-OP documents (complete package) must be uploaded using CO OP  within five (5) business days of final disposition.
  • Only one (1) complete PDF file can be submitted. After seven days from the initial upload date, any additional CO-OP documents that must be submitted must be sent to the HOC for appending to original submission.

                   California CO OP California CO-OP’s Status

To research the current status of an CO OP California CO-OP’s, perform a search of the California CO OP Approval List in CO OP Connection (CO OPC) or Co Op California California CO OP List

Initial Processing Time (CO OP: Generally up to 30 calendar days from the receipt date of the package by the jurisdictional HOC subject to available resources and volume of California CO-OP’s approval submissions received.

Initial Processing Time (DELRAP): Generally up to 5 business days from the receipt date of the complete package by COOP Mortgage Lenders California CO-OP’s Standards subject to available resources and volume of California CO-OP’s approval submissions received.

Reconsideration Processing Time (CO OP: Generally up to 30 calendar days from the receipt date of the reconsideration package by the jurisdictional HOC subject to available resources and volume of California CO-OP’s approval submissions received.

Please submit all CO-OP documents to COOP Mortgage Lenders California CO-OP’s Standards. COOP Mortgage Lenders California CO-OP’s Standards will submit to CO OP for HRAP approval.

                      California CO-OP’ss That Do Not Require Review

  • Site California CO-OP Mortgage Lenders: Site Condos are single family detached dwellings encumbered by a declaration of condo covenant or condo form of ownership. Must show in CC&R’s and have legal description showing condo. Condo California CO-OP’s approval is not required for Site Condos; however the condo rider must be included in the CO OP case binder. Use Condo appraisal form. Will be a 203b not 234.
  • CO OP to CO OP Streamline Refinances
  • CO OP/HUD Real Estate Owned

Miscellaneous HRAP/DELRAP

Owner Occupancy •      At least 50% owner occupied/second home for existing California CO-OP’ss, and 30% for proposed under construction (including existing California CO-OP’ss less than 12 months old) and gut rehab conversions.

•      No more than 10% of the CO-OP’s may be owned by one investor/developer/builder (if less than 10 CO-OP’s, no more than one unit by an investor).

Temporary Guidelines: Vacant and tenant-occupied REO CO-OP’s are excluded from the 50% calculation.

CO OP Connection Permanent Guidelines: 30%

•      If 3 or fewer CO-OP’s, no more than one unit with CO OP insurance

•      Concentration levels will be tracked on CO OP Connection and http://portal.hud.gov/hudportal/HUD , based on case number assigned for California CO-OP’s.

Temporary Guidelines: 50%

•      May be increased to 100% for well established California CO-OP’ss.

Presale CO-OP Requirements Permanent Guidelines: 50%

•      Existing and Non-gut conversions

•      Legal phasing is recommended

•      Phasing guidelines for vertical buildings are provided.

Temporary Guidelines: 30%

New Construction •      If a building permit and a certificate of occupancy was issued, neither an early start letter or a HUD 10-year California CO OP Warranty is required.

•      Builder’s Certification, Builder’s California CO OP Warranty and Affirmative Fair Housing Marketing Plan are required.

•      Temporary/Conditional Certificate of Occupancy may be acceptable under some circumstances.

Commercial Space •      No more than 25% of a California CO-OP Mortgage Lenders’s total floor area may be commercial.

•      Use must be homogeneous with residential use.

First Right of Refusal •      Permitted unless it is discriminatory under the Fair Housing Act
California CO OP Conversions •      1 year waiting period is eliminated.

•      Rehabilitation must be 100% complete.

•      Conversions from non-residential use are treated as new construction.

Environmental Review CO-OP Requirements •      Not required if the California CO-OP’s has progressed beyond the stage of construction that HUD would have any influence.

•      Appraiser identified environmental concerns must be addressed with mitigating factors.

Budget Review •      Sufficient funds to maintain amenities.

•      At least 10% of the budget for replacement reserves and capital expenditures.

•      Adequate funding for insurance.

•      In lieu of budget or reserve study, may use Fannie Mae form 1073a, Analysis of Annual Income and Expenses executed by the owners association or management company.

Insurance CO-OP Requirements •      Master California CO-OP’s, California CO-OP Mortgage Lenders, and Liability Policy

•      HO-6 Policy, if the master policy does not cover the interior of the unit, the homeowner is required to obtain an interior policy.

•      Fidelity Bond Coverage for California CO-OP’ss with more than 20 CO-OP’s.

Reviews: General CO-OP Requirements

The California CO OP must be acceptable to CO OP before any unit in the California CO-OP’s can be eligible for CO OP loan guaranty.

Submission Process

California CO-OP’s Standards must provide the following to the CO OP Office of Jurisdiction:

  • A written request for CO OP-Approval indicating that the California CO-OP’s meets CO OP requirement – must include the following:

o    The name of the California CO-OP’s

o    The location of the California CO-OP’s

o    A statement regarding whether or not the lots in the California CO-OP’s are created and subjected to the Declaration in phases, and approximate number of phases to be developed and the specific identities of the phases

o    Specific identification of CO-OP’s, and common areas to be subjected to the Declaration in the first phase being submitted for acceptance

o    Information on the status of the master or umbrella association, if any, including whether or not the CO-OP documents are recorded, a general description of the overall California CO-OP’s and the number of sub associations that may be planned

o    A copy of the California CO OP’s organizational CO-OP documents

Note: An attorney opinion letter is encouraged and will expedite CO OP approval of the California CO-OP’s by reducing the extent of CO OP’s review of those CO-OP documents

Requests are submitted through the Veterans Information Portal (VIP) or WebLGY environment platform.

Note: Reference CO OP Handbook Chapter 16 – Common Interest Communities, California CO-OP Mortgage Lenders and Planned Unit Development – section 16-A.02 for additional information

CO OP Review: General CO-OP Requirements

Ineligible California CO-OP Mortgage Lenders

In addition to the list detailed in Ineligible California CO-OP’ss, the following are ineligible:

  • Investment Securities – A California CO-OP’s in which ownership is characterized or promoted as an investment opportunity; and/or California CO-OP’s that have CO-OP documents in file with the Securities and Exchange Commission
  • Common interest apartments or community apartment California CO-OP’ss – Any California CO-OP’s or building that is owned by several owners as tenants-in-common or by a HOA in which individuals have an undivided interest in a residential apartment building and land, and have the right of exclusive occupancy of a specific apartment in the building

Site California CO OP Eligibility

California CO-OP’s Approval may not be required for site California CO-OP Mortgage Lenders if they meet the following criteria:

  • Single Family totally detached dwelling encumbered by a declaration of California CO OP covenant or California CO OP form of ownership
  • The unit has no shared garage or any other attached buildings (i.e. archways, breezeways)
  • The California CO OP unit consists of the entire structure, site and air space and is not considered to be common areas or limited common areas.

New California CO OP Construction

Required documentation:

  1. Form RD 1924-9, Certificate of Contractor’s Release
  2. An insured 10-year California CO OP Warranty
  3. RD 1924-19  Builder’s California CO OP Warranty
  4. Certificate of Occupancy
  5. Copies of building permits
  6. Form RD 1924-25, Plan Certification
  7. Certifications regarding the adequacy of all systems
  8. Additional certifications and warranties, including insulation, carpet, major equipment and appliances
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