What the Condo is Going on?

It is the second anniversary of the horrific Surfside Condo collapse in Florida, and the effects of the collapse are still being felt across all states by condo communities, condo buyers, Realtors, and Mortgage Loan Officers.

There have been new "temporary rules" enacted to ensure condo building safety, BUT what are those rules doing to lending?

As you probably know, the condo questionnaire that lenders use to determine the financial health of a condo HOA changed after the collapse. In the past, concerns about warrantable condos were mainly focused on investor/owner occupancy ratios and whether one entity owned a large portion of the condos in one community. Now, it includes deferred maintenance, as well as whether a community is meeting building standards.

While these stricter guidelines are meant to encourage safety, what it actually results in is more and more condo communities that are not meeting warrantable condo guidelines and are blacklisted.

Now it is important for Mortgage Loan Officers, Realtors, and buyers to look more closely at the condos they’re interested in – not only the fiscal health of condo communities but also the community's building safety and maintenance.

What Does That Mean For Loans?

If a community cannot be financed by an FHA, VA, or conventional mortgage loans, there ARE alternative lending programs. But these often require a larger down payment and have higher interest rates. This, in turn, makes condos no longer affordable options for home buyers, especially first-time homebuyers.

The term "unavailable buildings" means that the community is non-warrantable by Fannie Mae standards. This Blacklist is not available to Loan Offices, Realtors, or potential buyers, which means they can’t determine if a condo is financeable with Fannie Mae.

Unfortunately, only approved parties like lenders have access to the "unavailable" condo list. A buyer cannot know for sure that they can purchase a condo in a community until they are under contract and, in most cases, pay a fee to obtain a condo questionnaire and required documents from the HOA management company. These documents can cost anywhere from $100 to $500.

Fannie Mae states that by implementing stricter condo rules in the long run, they are saving potential buyers from future costs. But they seem to be forgetting that condos are affordable housing, and many people who buy them have limited funds. A first-time home buyer with limited funds may end up spending a lot of money only to find out they cannot buy the condo at all.

What’s even more frustrating is that a condo community itself may not even know that it is on the "unavailable list" . How can communities address issues if they do not know that there is an issue?

Is Anything Being Done?

The National Association of Realtors and the Community Association Institute are calling for public access to Fannie Mae's list and guidance on how communities can regain eligibility.

Freddie Mac, at least, does have a platform for condo information that provides feedback to lenders early on in the loan process, which keeps buyers from spending money before knowing if the community they’re looking at is even eligible for a loan.

The Federal Housing Administration (FHA) also has a public database so that buyers, Realtors, and Mortgage Loan Officers can check to see if a community is approved. The FHA list is located at https://entp.hud.gov/idapp/html/condlook.cfm.

VA also has a public database for approved condos: https://lgy.va.gov/lgyhub/condo-report.

It is important to remember that the FHA and VA have different qualifications for condos than Fannie Mae and Freddie Mac. Often, the VA follows FHA condo guidelines. The only difference is that FHA does require communities to recertify their approval every three years. The VA's condo approval is for a lifetime.

Despite all of the new regulations put forth by Fannie and Freddie for condos and co-op mortgages, the rate of condos being bought has remained consistent at 9% as of the end of 2022.

What Does This Mean For Buyers and Realtors Looking At Condos?

In the face of such frustrating regulations, working with a Mortgage Broker like me is crucial. I take the time to research condo communities to see if there are any glaring issues that will make a condo non-warrantable. I also have some extra tools in my toolbox that I use to see if a condo IS warrantable. There is no guarantee that a community is warrantable, but I do take extra precautions to ensure that we are not wasting a borrower's money on inspections, condo certificates, and appraisals for something that is not financeable.

With over 19 years of experience, I understand the importance of doing the work upfront to ensure a successful closing. Please reach out to me if you have any questions about condos or any other mortgage-related topics.

* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.