Condominium Lending Update

In 2008 and 2009, Fannie Mae and Freddie Mac greatly tightened guidelines for condominiums. In late 2009 HUD followed with the first update of their requirements in years. Most of the HUD reforms were adoptions of those of Fannie Mae. However, they did rescind their spot approval process which the industry had been using for years for existing properties. Now each condo project must be approved by HUD, or in some instances, a delegated lender. For those projects currently approved by HUD, they must meet some of the new guidelines before a loan can close with all the new guidelines being required at the time of the project recertification. There is also a limit on the number of loans that can be financed by FHA. This information is available on the HUD approved condominium website. Some of the guidelines that are currently causing issues with project approvals are: Litigation - If property is involved in litigation it should be for the collection of HOA dues. Fannie Mae will occasionally issue an exception for frivolous lawsuits. Delinquency - If more than 15% of the HOA are 30 or more days delinquent, then it won't get approved. Budget - It should show 10% of the income being set aside for reserve items. Special Assessments - will be looked at closely because the agencies want the budget to be adequate to pay the expenses and property repairs from the yearly HOA dues. 10% - No one group or individual should own more than 10% of the units which could include the developer if the units are not currently on the market, but are being leased out. Commercial Space - Fannie allows up to 20% and HUD allows 25%. Insurance - Required coverage is 100% replacement cost on the buildings, liability or at least 1 million dollars, and fidelity insurance, which is often referred to as employee dishonesty. This is for a 20 unit or more project, and requires 3 months of HOA dues for Fannie Mae and 3 months of HOA dues and the reserve account balance for FHA. Before listing a property, I think it would be a good idea to review a condo questionnaire to make sure the property can get financing. We will be glad to answer questions.