New Condo Mortgage Guidelines After The Florida Condo Disaster

There have been several announcements regarding condominium deferred maintenance recently.  As a mortgage lender, we must pay attention to announcements regarding  changes in underwriting guidelines from both governmental mortgage agencies that write off all of mortgage guidelines, Fannie Mae and Freddie Mac. We also have to pay attention to guideline changes announced by the various banks that we sell loans to.

Ever since the horrific disaster in Surfside Florida on June 24^th 2021 (when the building collapsed due to deferred maintenance), the government agencies and the banks we sell mortgages to have started to incorporate questions related to condominium maintenance into the condo questionnaire.

CONDO DOCUMENTATION

A condo questionnaire is a document that a mortgage lender sends the property manager of a condominium which asks several pages of questions related to the budget and management of a condominium. A new condo questionnaire has been created by the agencies and adopted by all of the various lenders.

Some property management companies have pushed back against answering some of the maintenance questions, which is necessary to approve the condominium and is required to approve the loan for a mortgage borrower.  These property management companies don’t want to be responsible for assessing and making judgment calls on building maintenance.

GUIDELINES AND REQUIREMENTS

Fannie Mae addressed their requirements in their Lender Letter 2021-14.  The best practices outlined include the following: https://singlefamily.fanniemae.com/media/29411/display

1. As a best practice, the lender should review the past six months of a project’s HOA meeting minutes and obtain information about any maintenance or construction that may have significant safety, soundness, structural integrity, or habitability impacts on the unit or the project. References to items such as improvements, renovations, inadequate reserve funding, budget deficits, negative cash-flows should be researched to determine if these items are related to deferred maintenance or other conditions that impact the safety, soundness, structural integrity, or habitability.
2. It has been recommended that we mortgage lenders review any available inspection, engineering, or other certification reports completed within the past five years to identify deferred maintenance that may need to be addressed. Condo projects engaged in construction defect litigation or other material litigation are ineligible for a mortgage.

Freddie Mac addressed this Bulletin 2021-18.  Their guidance is very similar, click here to see it.

1. Mortgages secured by units in Condominium Projects in need of Critical Repairs, as defined above, are not eligible for sale to Freddie Mac. Acceptable sources of documentation to determine if a project needs Critical Repairs may include but are not limited to:

• Homeowners association (HOA) board meeting minutes
• Engineer’s reports
• Reserve studies
• List of necessary repairs provided by the HOA or management company, and
• Other substantially similar documentation

As per the above best practices, if we are unable to obtain answers to the new questions regarding deferred maintenance, the items listed above will be required instead and underwriting and/or management will be required to review and determine if deferred maintenance is present.

The new condo questionnaire required by Fannie Mae can be found here, and it will give you an itemization of the type of questions they’re looking for answers to:  https://singlefamily.fanniemae.com/media/15656/display

TAKEAWAYS

First, it’s going to take longer to get condo loans approved. You are likely not going to be able to close a 21 day purchase loan because it is going to take much longer to receive the necessary documentation to approve a condo going forward.

Second, there may be times when a lender is unable to get sufficient documentation to make a judgment call on a building’s maintenance, deferred or otherwise, and they may not be able to approve a loan due to lack of required documentation.

Contact me if you have a specific condominium that you would like to ask a question about, or if you have a special specific condo mortgage guideline question. It has now suddenly become more complicated to get a mortgage for a condo, and this will likely be in place for quite a while.