Changes to Condo Lending

Homebuyers may find it more difficult to get loans for condos and co-ops with deferred maintenance due to lending changes stemming from last year’s condo collapse in Surfside, Fla.

Tighter condo lending requirements from Fannie Mae went into effect on January 1, 2022, nearly 7 months after 98 lives and 136 homes were lost in the Champlain Towers South collapse. Fannie Mae is one of two government-sponsored enterprises that back a majority of conventional home loans.

An investigation into the cause of the disaster revealed significant deferred maintenance not only in Champlain Towers South and the building surrounding it, but widespread safety and maintenance challenges in high-rise condos built in the late 1900’s.

According to a blog post from Fannie Mae director of single-family collateral risk management Jodi Horne, the new requirements make condos with “significant deferred maintenance or that have received a repair directive from a local regulatory authority or inspection agency” ineligible for a Fannie Mae loan until repairs have been made.

In simple terms: Fannie Mae won’t back loans for condos or co-ops with known safety and structural issues. And if Fannie won’t back the mortgages, lenders will be more hesitant to offer them to condo buyers.

A October lender letter from Fannie Mae defines “significant deferred maintenance” as projects that:

• Require full or partial evacuation for more than seven days to complete repairs
• Affect safety, soundness, or structural integrity
• Need substantial repairs or rehabilitation
• Impede the function of major structural or mechanical elements, such as foundation, roof, load bearing structure, electrical systems, HVAC, or plumbing

Fannie also updated its eligibility review requirements for itself and lenders, and reminded appraisers and lenders that condo appraisals must document special assessments (maintenance costs) and deferred maintenance.

Read more here: https://home.com/new-fannie-mae-condo-requirements/

Some references sourced within this article have not been prepared by Fairway and are distributed for educational purposes only. The information is not guaranteed to be accurate and may not entirely represent the opinions of Fairway.