In light of the Champlain South Tower collapse in Surfside, Florida, last year, Fannie Mae and Freddie Mac issued temporary requirements that affect pricing and reviews for condos and co-op projects. Freddie Mac's provisions are effective as of February 28, while Fannie Mae's requirements were effective on January 1.
The requirements are applicable to all loans secured by units in projects with five or more attached units, despite the type of project review or review waiver. These adjustments are also based on loan value, equity in a home, and credit score.
Read on to learn about the importance of these new requirements and how you can be mindful of them for the future.
While we loved the low rates over the past two years, things are changing. Remember, guidelines were loosened to keep the housing market stable.
At this rate, it is best to go back to the cautionary lending that was in place before the pandemic.
We all remember the 80/20 and zero-down payment loans that helped create the mortgage meltdown. It is becoming more expensive to have bad credit and little money for a down payment.
Sufficient financial reserves are necessary to fund the significant maintenance that supports the ongoing viability of condo and co-op projects. Condos and co-ops are affordable homeownership options in many markets and a lifestyle choice for many buyers.
With a housing shortage, it's more important than ever for us to support and protect sustainable homeownership in condo and co-op projects.
As for the condos, the collapse dawned a light on the importance of identifying deferred maintenance and failures of communities to meet structural integrity, and habitability. Even before the Surfside condo collapse, the housing market recognized the challenge posed by the aging of buildings constructed or converted from rentals between the 1970s and 1990s.
In 2020, the Foundation for Community Association Research published a report that examined aging structures like condos and co-ops, stating that "association homeowners and boards often are focused on keeping regular assessments low and only investing in visible, immediate outcomes."
The report also stated that "too often … associations fail to recognize serious structural and system failures. When damage becomes so obvious that it cannot be ignored, the tendency is to make superficial or temporary repairs and postpone comprehensive, in-depth restoration."
To me, these requirements emphasize structural and financial stability for borrowers, lenders, and realtors. Documentation is key here; community associations should carefully maintain and do the necessary paperwork to appraisers and lenders (appraisals, most recent six months of meeting minutes, financial statements, engineering reports, inspection reports, and reserve studies).
Overall, these requirements provide transparency for everyone involved, so that devastating events like the collapse do not happen again.
For borrowers, this means more transparency. No longer will borrowers and condo buyers move into their units only to find construction crews unloading outside their homes.
Lenders will now have to use the updated HOA certification paperwork with the additional questions. They must complete the information on special assessments and deferred maintenance projects to do a loan backed by Fannie Mae and Freddie Mac, regardless of a limited or full review.
Again, these new requirements and prices focus on structural and financial stability. The requirements will prepare you for success in maintaining an investment like a condo or co-op.
While these requirements may come into question or raise concerns, please keep in mind that Fannie Mae and Freddie Mac are working to prepare you for success in this kind of investment.
If you have any questions on how to stay mindful about these requirements, give me a call or send me an email at firstname.lastname@example.org!