Condo mortgage requirements get tough
After years of running the agency like the wild West, granting home loans to anyone who could fog up a mirror, Fannie Mae is finally getting religion – only this time it could hurt the Florida housing industry even more.
Many of Fannie Mae’s lending regulations are being tightend up, requiring higher credit scores, more down payment money and income verification documentation – restrictions that should have been followed for years. Now it has instituted tough new requirements on mortgages being applied for specifically in the state of Florida related to condo purchases. Since Fannie Mae backed loans are generally the best rates, any changes in its criteria will have a significant affect on the marketplace.
The new standards took effect mid-January and include requiring that no more than 15 percent of a condo association’s owners can be delinquent on association fees for 30 days or more as a condition of funding home loans to new buyers. In addition, for new condo buildings or condo conversions, at least 70 percent of units must have been sold or put under contract up from 49 percent previously. And Fannie will now have to review condo buildings to make sure they meet Fannie requirements, at the lender’s expense. Previously, Fannie relied on the lenders to perform these reviews, which we can assume will place significant delays on the mortgage process.
These new regulations come at a time when condo buyers are already facing difficulties getting mortgages from banks that have pulled back on condo lending. Some lending institutions are requiring down payments of up to 40 percent in new buildings, and some new condos are actually being blacklisted by lenders. So why would a bank let itself in for even more regulation and grief?
Fannie Mae changed these regulations after reviewing mortgage loans in Florida, which revealed record high defaults and foreclosures among condo owners. It contends that borrowers will benefit from the regulation changes by knowing they are moving into a condo complex that is adequately funded and has reserves. Maybe so, but there are many condo associations, both old and new, that will not meet these guidelines and these are the very associations that need buyers the most.
According to the Miami Herald, as much as 25 percent of the condo market in the tri-county Miami region could be shut out of financing. In addition, Freddie Mac, the second major mortgage grantor, typically follows Fannie Mae’s lead and will likely implement these guidelines soon. This will undoubtedly create new opportunities for cash rich buyers who will be able to purchase distressed properties at even greater discounts.
How will these stricter mortgage regulations affect our area? Anything that is harmful to any region of Florida real estate is bad for the state as a whole, however, fortunately Anna Maria Island has not been overbuilt with condos that haven’t sold and are now sitting empty. But, since many of Anna Maria’s and Manatee County’s condo owners are either investors or second home owners who may be having financial difficulties, it’s likely there is a fair amount of default in association fees that could negatively affect a potential sale.
Fannie Mae, which has tremendous financial problems and is in conservatorship with the federal government and has run its organization into the ground with “fluff” mortgages, now wants to further punish the very people it irresponsibly helped to finance. The wild West may be over, but instead of getting Marshal Matt Dillon, condo owners have Bonnie and Clyde shooting up Florida calling themselves Fannie Mae and Freddie Mac.