Mortgage rates remained unchanged this week. The condo market is experiencing new roadblocks courtesy of mortgage giants Fannie Mae and Freddie Mac.
On March 1, Fannie Mae stopped guaranteeing mortgages in new or newly converted condo developments in which fewer than 70 percent of units have been sold or are under contract. Fannie’s previous rules set the cutoff at 51 percent.
Freddie Mac recently sent a bulletin to sellers and servicers announcing plans to adopt similar restrictions wholesale beginning July 1.
The Fannie changes are especially unwelcome in cities such as
Fannie Mae’s presale guidelines target new developments, typically defined as projects where the developer has not yet turned over the homeowners association to the owners.
However, existing communities are not immune. Older Fannie rules in place for years have started to hamper mortgage activity in previously stable communities now struggling as the condo market sags.
For the past couple of years, Fannie has refused to guarantee mortgages for purchase in existing condo communities where 15 percent or more of owners are delinquent on their association fees by at least 30 days. Such delinquencies have become epidemic in complexes with many foreclosures.
The 15 percent HOA delinquency requirement now applies to both new and existing condo projects. Previously it only applied to existing condo projects. In addition, Fannie does not guarantee loans in new or existing communities where more than 10 percent of units are owned by single entity or where more than 20 percent of the total space in a project is used for nonresidential purposes. Developers who do not meet the 70 percent threshold can ask Fannie to waive the restrictions in certain circumstances.
As of the fourth quarter of 2008, Fannie Mae and Freddie Mac together owned or guaranteed 56 percent of the 55 million mortgages outstanding in the