Fannie, Freddie Update Selling Guides to Address New Condo Requirements
Written By: Joel Palmer, Op-Ed Writer
Fannie Mae and Freddie Mac recently updated their Selling Guides to address new requirements for condominium and co-op project eligibility.
In its Selling Guide update announcement, Fannie Mae referred to Lender Letter LL-2021-14 that was released in October 2021, shortly after the collapse of the Champlain South Tower in Surfside, Florida, that resulted in nearly 100 deaths. Freddie Mac addressed the same concerns in Bulletin 2021-38.
These bulletins announced temporary requirements related to facilities with significant deferred maintenance and special assessments. Following the Florida tragedy, there has been growing concern about aging infrastructure and deferred maintenance in residential condo and co-op buildings, the majority of which were built more than 20 years ago. The entities noted that special assessments can result in financial hardship for homeowners of these properties, which puts them at risk for loan default and foreclosure.
At the direction of the Federal Housing Finance Agency (FHFA), Fannie Mae and Freddie Mac updated project review requirements to assist lenders in identifying projects that may have issues that result in unsafe conditions, and to promote sustainable homeownership. Both entities are updating their project standards policies to address projects in need of critical repairs and that have material deficiencies, such as significant deferred maintenance, or special assessments.
These requirements apply to all loans secured by units in condo projects and all cooperative share loans secured by share ownership in a co-op project with five or more attached units, regardless of the project review type. The requirements also apply to loans eligible for delivery under the waiver of project review policy.
These project review requirements:
Define critical repairs, material deficiencies, and significant deferred maintenance, including defining routine repairs that are not considered critical.
Prohibit sale of condo loans and co-op share loans in projects in need of critical repairs.
Prohibit sale of condo loans and co-op share loans in projects with current evacuation orders due to unsafe conditions.
Require a review of all structural or mechanical inspection reports that have been completed within 3 years of the project review date.
Provide new requirements for condo or co-op projects with special assessments.
Prohibit sale of condo loans and co-op share loans in projects with unfunded repairs totaling more than $10,000 per unit.
Fannie Mae said in its update that it would prohibit the sale of condo loans and co-op share loans in projects that have an "Unavailable" status in Condo Project Manager.
Freddie Mac has added a new status called “Project Certified” in its Condo Project Advisor. When Condo Project Advisor finds that a project complies with the requirements for Established Condominium Projects and is not an ineligible project, it will assign a “Project Certified” status.
Both entities said lenders can incorporate policy changes into the review process immediately, but must implement them for all new loan applications dated on or after September 18, 2023.
Separately, Fannie Mae also revised the eligibility requirements for limited cash-out refinances to stipulate that at least one borrower on the new loan must be a current owner of the subject property at the time of the initial loan application.
Freddie Mac’s Selling Guide update included a new requirement to use the American National Standards Institute (ANSI) Standard for measuring finished and unfinished areas of certain one-unit properties.
About the Author
As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
