Is Your Association in Compliance with Changes in Fannie Mae Underwriting Criteria?

Changes in Fannie Mae’s underwriting standards for mortgages may very well create a violent storm for community associations. Lenders are now required to more carefully scrutinize condominiums and their management companies, which will ultimately mean more mortgage application denials.

Condominiums are considered to be very high risk in the current housing market since there has been a significant increase in condo owners that default and go into foreclosure. In many cases this has been caused by escalating property insurance premiums and/or major repairs due to long-term deferred maintenance which forced associations to impose special assessments.
Over the course of the past six months, Fannie Mae has gradually implemented requirements such as:

• No more than 15 percent of its association fee payments more may be more than one month delinquent,
• At least 10 percent of the association's total budget must be in reserves for capital expenditures and deferred maintenance,
• Lowering the loan-to-value ratio to no more than 90 percent for a condo resident,
• Associations must be majority owner-occupied or second-home purchasers and at least 51 percent owner-occupied if the mortgage is for an investor,
• At least 5% of the condo’s value must be derived from the borrowers’ own funds,
• Appropriate legal documentation,
• The adequacy of the association’s annual budget, and
• The adequacy of property insurance.

Although most of the major changes have been in place since February, they are just now beginning to affect the condominium market.
“Associations will be under additional scrutiny in terms of their overall budgets, reserves and delinquencies by unit owners. Throughout the Community Association Industry, we are now seeing increased client awareness of these changes at board meetings and daily telephone calls,” said Jordan Arovas at Webster Bank.

According to a Fannie Mae official, ‘requirements for condo projects are intended to ensure that the project is managed appropriately, and has adequate reserves and appropriate governing documents that will result in stability and sustainability for the entire project and its homeowners. ‘