Recent changes that Fannie Mae made which could affect condo lending in the months ahead.
Executive Summary:
- Fannie Mae issued temporary changes that will require lenders to provide detailed architectural and safety verifications of a buildings safety and will not back properties with significant deferred maintenance
- Fannie Mae will not allow waivers for a reserve study in lieu of the 10% minimum on new projects
- Changes go into effect January 1st, 2022.
On October 13th, Fannie Mae announced temporary changes to its underwriting policies that govern the purchase of mortgages backing condominiums. The changes were in response to the tragedy in Surfside, Florida where half of the Champlain Towers Condominium collapsed killing 98 people and injuring many more. Engineering reviews revealed that the properties' structure had degraded over time and was in need of repairs, while the association had insufficient reserves for the needed repairs.
The crux of the announcement is that Fannie Mae will not purchase mortgages on condominiums that have, "significant deferred maintenance or in projects that have received a directive from a regulatory authority or inspection agency to make repairs due to unsafe conditions". Lenders will need to verify and provide, "satisfactory engineering or inspection report, certificate of occupancy, or other substantially similar documentation that shows the repairs have been completed in a manner that resolves the building's safety, soundness, structural integrity, or habitability concerns".
Furthermore, any due or recently paid special assessment will be reviewed and Fannie Mae is suspending the ability of associations to use a special reserve study in place of its 10% minimum reserve requirements. Communities may request a waiver, so long as they are not a new project.
Fannie Mae indicated that it expects the impact to be relatively small and isolated. However, the impact could be larger in Florida where state statute allows for associations to waive reserving requirements. The result of the change will make it more difficult to sell properties in projects where the association has not updated financials, reviews or reserving.
As seller's agent, compiling these documents as part of the sales process would be a value add in this market and help signal and smoother sale to buyers' agents.
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