Summary of New Requirements
The Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) are government-sponsored enterprises created in order to expand the secondary market for mortgages in the U.S. By providing liquidity and flexibility to lenders, Fannie Mae and Freddie Mac are able to support mortgage borrowers and the housing market generally.
In the aftermath of the tragic collapse of Florida’s Champlain South Tower, Fannie Mae and Freddie Mac have modified their eligibility requirements for mortgage financing purposes. The new requirements filter condominium and co-op properties with (1) significant deferred maintenance or (2) unsafe conditions from the pool of mortgages eligible for purchase by Fannie Mae or Freddie Mac. In order to ensure compliance with these new requirements, both Fannie Mae and Freddie Mac have issued temporary (but indefinite) guidelines requiring lenders to provide detailed information on the structural and financial health of a condominium or co-op in order for a loan to be eligible for purchase. Fannie Mae’s requirements went into effect on January 1, 2022, while Freddie Mac’s will take effect on February 28, 2022.
Impact on Community Assocations
Collectively, Fannie Mae and Freddie Mac guarantee about half of the country’s $11 trillion mortgage market. As a result, any loan that is not eligible for purchase by Fannie Mae or Freddie Mac is of limited marketability, and generally less desirable. In practice, condominium and co-op associations nationwide should expect to start receiving detailed, time-sensitive requests for information from buyers, sellers, and lenders connected with the resale or refinancing of properties.
While Fannie Mae and Freddie Mac’s new requirements do not directly impact a community association’s day to day business, they will have an impact on the “pool” of buyers who can purchase units and the availability of loans for those looking to refinance. In practice, condominium and co-op associations will want to ensure they are positioned to address these requests as they arise so buyers or refinancers can utilize a Fannie or Freddie loan. Otherwise, the association may find it is difficult for potential buyers to obtain loans and current owners to refinance, negatively affecting the marketability of the association’s units.
How We Can Help
Community Associations will want to proceed with caution while addressing requests connected with the financial and structural health of the community and its property, as incorrect or incomplete responses could potentially create liability for the association. It is recommended that associations consult with legal counsel to address requests connected with Fannie Mae or Freddie Mac eligibility as they arise. Our team at Smith Jadin Johnson, PLLC has extensive experience representing associations and is ready to help. Our office will review the association’s records in order to provide an opinion regarding the community’s eligibility for Fannie Mae or Freddie Mac financing. We can then prepare a formal opinion letter (along with a list of relevant exhibits) that the association or its management company can provide to lenders in response to inquiries from lenders and other third parties. We recommend all condominiums and co-ops with five or more attached units obtain this documentation as soon as possible and arrange for its review at least bi-annually in order to ensure that the information being provided to lenders is up to date.
Prudent condominiums and co-ops will take action to ensure they are ready to address these requests immediately, rather than waiting until a time-sensitive closing is pending. If you or your association need assistance with this issue, please contact our office today.