Fannie Mae and Freddie Mac: What new lending guidelines mean for your condominium or co-op

Fannie Mae and Freddie Mac released new guidelines in late 2021 that bring additional requirements for condominiums and housing cooperatives. Buildings with five or more attached units must meet updated structural safety standards to secure loans for mortgages backed by the government-sponsored enterprises

The new requirements were released in response to concerns about aging infrastructure and deferred maintenance following the tragic partial collapse of Champlain Towers South condominium in Surfside Fla., in June 2021. However, the short period of implementation and updated lender questionnaires have caught community associations off-guard, and they are now seeking to address the new requirements while keeping real estate transactions in their communities moving forward.

The U.S. has around 156,000 condominium associations and housing cooperatives with between 27 and 32 million Americans living within them, according to estimates from the Foundation for Community Association Research. These new requirements are challenging because there are a large number of older buildings with mortgages backed by Fannie Mae and Freddie Mac that will have difficulty arranging building inspections in a short timeframe.

“Seventy percent of all condo loans in the U.S. are (backed by) Fannie Mae or Freddie Mac. Sixty to 70% of all condo complexes are more than 30 years old,” Dawn Bauman, CAI’s senior vice president of government and public affairs, told the Orange County Register. “We’re asking them to give communities more time to address many of the new questions and for at least five years to meet the requisite building inspections,” she adds. Building inspections can cost $15,000 to $50,000 depending on the number of units in a condominium, according to Bauman.

Recently, CAI members have shared that creditworthy borrowers have been denied credit to purchase homes and refinance mortgages in condominium and cooperative projects with no safety or structural integrity concerns because of the temporary guidelines.

Melissa Guyott, CMCA, AMS, PCAM, president and co-owner of Ponderosa Community Management in Leavenworth, Wash., says there also seems to be confusion about the types of building projects that must meet the requirements, as well as documentation required in the updated lending questionnaires.

“We recently started to receive requests for engineering reports as part of qualification questionnaires for the resale of condominium units in Washington state. It seems that there is a new set of qualifiers for buyers when purchasing condos that none of the lenders have been trained on,” she notes. “Buyers are frustrated they can’t get lending, sellers are angry that there is no engineering report, and boards are upset that we can’t effectively guide them on what to do.”

The guidelines also are creating concerns from homebuilders. “They are asking if they should get engineering reports as part of the public offering statements required under Washington state law,” explains Guyott. “The confusion is that there is no requirement under state statute to obtain such a report, nor any guidelines as to the specifics of what the reports must contain.”

CAI supports the intent of the new requirements from Fannie Mae and Freddie Mac and understands the need to assess and mitigate risks associated with their respective condominium unit and cooperative share mortgage portfolios but is recommending a delay in implementation. This will allow associations, their managing agents, and service providers to produce documentation materials more efficiently and account for state and local government regulations for project safety and financial solvency standards.

Find more information on the updated requirements from Fannie Mae and Freddie Mac here.

Representatives from Fannie Mae and Freddie Mac gave advice to our members in a CAI exclusive webinar. Download and watch.

HOAresources.com explores questions and comments from community association members living in condominiums, homeowners associations, and housing cooperatives. We then assemble trusted experts to provide practical solutions to your most commonly asked, timely questions. We never use real names, but we always tackle real issues. Have a question or comment about your community association? Submit here for consideration: