New HOA questionnaire could torpedo condo financing under Fannie, Freddie – Press Enterprise

A nightmare scenario is looming for condo buyers applying for certain types of federally backed mortgages.

If you’re selling or looking to buy an attached condominium in a community of five or more units, conventional financing from mortgage giants Fannie Mae and Freddie Mac could soon become elusive..

Beginning Jan. 1 for Fannie and Feb. 28 for Freddie, the mortgage giants are putting the screw on a mandatory HOA questionnaire. New questions ask candidates about the structural integrity of the community and whether code violations are anticipated.

There’s no doubt Fannie and Freddie’s updated loan warrants are in response to the Florida condo tower that killed 98 people last June 24. Years of deferred maintenance at the Champlain Towers in Surfside caused the 12-story building to collapse.

Responding fully and comprehensively to agencies could force lenders to refuse a mortgage application. (Remember: mortgage lenders fund a loan, then can sell it to Fannie or Freddie).

“Yes, lenders are turning down projects even for just a special appraisal for repairs now. Things are trickling in right now because advice started Jan. 1,” said a condo project approval expert, who asked to remain anonymous because he is not the spokesperson. media of his company. “Soon, we will see the effects affect the entire condominium market. I’ve only seen it affect projects with major issues at this point; which means (the project) has code violations and millions of dollars in ongoing repairs.

Answering these questions honestly or possibly with a guess could result in liability in the form of future lawsuits against HOA stakeholders such as the property management company, board members, inspectors, engineers, and the association.

If the questionnaire is not completely answered because the answers are unknown or indeterminate, it may mean that the purchase or refinance is torpedoed.

Here are some of the questions included in Fannie Mae’s Form 1076 Condominium Project Questionnaire (released December 2021 and updated to eight by five pages):

Q: Is the HOA aware of any deficiencies related to the safety, soundness, structural integrity, or habitability of the project building(s)?

My reaction: If management was unaware of any shortcomings, for example, and responded as such, should they reasonably have known that these calamities might occur later?

Q: Is it anticipated that the project will have, in the future, such violations (zoning ordinances, codes, etc., which relate to safety, soundness, structural integrity or habitability? )?

My reaction: For peace’s sake, how could it be determined whether yet-to-be-written jurisdictional codes are triggering new violations in the condo complex?

These dubious questions could be like a winning lottery ticket for any lawyer who lives in the world of HOA litigation.

Why is this so problematic? The nation has a huge community of very old condos and many of them are backed by Fannie Mae and Freddie Mac mortgages.

The United States has as many as 156,000 condo associations and co-ops housing between 27 million and 32 million Americans, according to the Community Associations Institute.

“Seventy percent of all condominium loans in the United States are Fannie or Freddie (backed),” said Dawn Bauman, senior vice president of government affairs at CAI. “Sixty to 70% of all condo complexes are over 30 years old.”

Fannie Mae released a list of 82 “unavailable” California condo projects, including the Marina City Club in Marina Del Rey, which has $80 million to $140 million in needed repairs according to a report last year. That 10-acre complex is one of nearly 1,000 “unavailable” condo projects nationwide. For Fannie Mae, unavailable means that a property is not eligible for purchase by the agency.

A mortgage manager told me that Fannie makes the rounds, emphasizing these issues on new condos during lender visits. So don’t be surprised if this unavailable list explodes as Fannie gathers more information.

To be fair, Fannie and Freddie need to dig deeper to assess and factor in the condo’s structural risk before purchasing these mortgages from lenders. Mortgage giants may also disqualify a condo community for other reasons, such as a lack of budget reserves.

If your loan is denied due to Fan or Fred HOA certification responses, you may be able to obtain financing on what the industry calls an unsecured loan. You should expect to pay perhaps a half to one rate point higher than conventional financing. You may also need to provide a larger down payment or have more equity remaining compared to Fannie type requirements.

But beware buyer: Unqualified mortgage lenders who offer exotic unsecured condominium mortgages are also not a loan approval.

For example, California-based LendSure has a condo advice checklist to help determine investor risk.. According to Joe Lydon, co-founder and managing director of LendSure.

Why so much deferred maintenance? Unit owners are often reluctant to increase HOA fees or special appraisals for repairs and updates. According to Bauman, condo complex building inspections can cost between $15,000 and $50,000 depending on the number of units.

“The Institute of Community Associations is pushing for laws to mandate reserve surveys and building inspections,” Bauman said. CAI also asks Fan and Fred to give the HOAs more time to be able to answer as many new HOA questions. “Five years to expedite required building inspections.”

Freddie Mac Rate News

The 30-year fixed rate averaged 3.56%, its highest rate since March 2020 and up 11 basis points from last week. The 15-year fixed rate averaged 2.79%, up 17 basis points from last week.

The Mortgage Bankers Association reported a 2.3% increase in mortgage application volume over the previous two weeks.

At the end of the line : Assuming a borrower gets the average 30-year fixed rate on a conforming loan of $647,200, last year’s payment was $279 less than this week’s payment of $2,928.

What I see: Locally, well-qualified borrowers can obtain the following fixed rate mortgages without points: A 30-year FHA at 3.125%, a 15-year conventional at 2.75%, a 30-year conventional at 3.5%, a balance ($647,201 to $970,800) at 3.25%, a conventional 30-year high balance at 3.5%, and a fixed 30-year jumbo at 3.375%.

To note: The 30-year FHA-compliant loan is limited to $562,350 in the Inland Empire and $647,200 in LA and Orange counties.

Eye-catching loan program of the week: A 30-year fixed at 3% with a cost of two points.

Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or [email protected] His website is www.mortgagegrader.com.

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