Four years after a notorious condominium collapse that suddenly tightened home lending standards, influential government-sponsored enterprises have soothed some industry tensions, but lenders say there's still more to be done.
"Increased transparency regarding which condo projects are and are not on Fannie and Freddie's approved list has been a big CHLA priority — so we are pleased with progress in that area," said Scott Olson, executive director of the
Mortgage companies nevertheless still have frustrations with the list Fannie Mae and Freddie Mac have of buildings considered too unsound to fund single-family units in, and perhaps more so the ability to do something about it within sales timelines if there's an issue.
Part of this comes from
"Rising insurance costs are an issue that affects homebuyers, their lenders, and federal mortgage programs — FHA and the GSEs — so we continue to advocate for policies that balance affordability with prudent standards," Olson said in an email.
In other words, GSE efforts like
"You can see early on if it's not approved or if there's an issue. So that does help weed some of them out," said Philip Crescenzo Jr., vice president in Nation One Mortgage Corp.'s Southeast division, said of his team's feedback on the collective GSE effort to improve blacklist visibility.
"But the information is not always clear on the ones that are approved," he added.
Lending headaches involved in the blacklisting system
Three out of the last four condo originations the company reviewed did not get a green light from the enterprises, which is necessary to give borrowers the most favorable rates, Crescenzo said.
His team reports that rising building insurance costs and declining availability have become a major concern, with conditions worsening over time. It may mean a change in project status from approved to blacklisted within the course of the origination.
"There have been ones where we found out late in the process," he said.
Discrepancies between the system-listed status of the building and the one it has later in the origination timeline also can result because traditionally information is only recorded when a building when a loan is made there, something a more proactive GSE approach could address.
"What if nobody's revisited the home sale or a purchase in that community in six months, nine months, or whatever? If it's in an area where people just aren't selling a lot, everything's going to be outdated, because nobody's looking at the risk," Crescenzo said.
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When asked about Fannie's mention of shifting to a more proactive approach, Crescenzo said, "I haven't seen anything tangible, but I like that."
(At the time of this writing, Fannie and Freddie had not immediately provided any additional information to provide updates on their latest condo initiatives and given information about lender feedback.)
Other condo approval challenges Crescenzo said his team has run into recently included a situation where a building the company was trying to fund a loan that one GSE labeled as having a "condotel" that's disallowed, and didn't meet insurance requirements.
However, the other enterprise listed the loan as not having a condotel component suggesting the information could be incorrect.
Crescenzo said efforts to address this through submitting a lot of documented proof there were no such units in the building were unsuccessful and the loan did not close with the GSEs due to delays.
When asked about progress in the past year given the GSEs' updates, the Community Associations Institute described them as "well intentioned," but the group said the market is still "in crisis."
"The tragedy in Surfside must remain a catalyst for reform but not one that indiscriminately penalizes responsible communities," the institute said.
Insurance and new standards for reserves in reaction to the Surfside tragedy have remained challenges associations have worked hard to address but can struggle with, according to the institute.
"These conditions are making it harder for buyers to qualify for loans, while associations are forced to make repaid financial changes under pressure, yet many communities are proactively stepping up — completing repairs, funding reserves and improving transparency," CAI said.
In a survey of over 700 community leaders, CAI found 42% of respondents didn't know their building's status in regard to qualifying for financing, and 64% of those with an "ineligible" status reported "negative impacts on home sales and property," CAI said in an emailed statement.
"Many well-maintained, financially responsible communities are being denied access to mortgages, not because of safety risks, but due to vague documentation rules and unrealistic reserve or insurance thresholds," the institute said.
Suggested reforms to the blacklisting process
CAI would like to see a more "reasonable and phased compliance plan for reserve studies and funding," and more flexibility for insurance arrangements such as relaxing rules and the replacement cost requirement that could make coverage more manageable for associations.
CAI also would like to see more condo boards and managers get more direct access to the blacklist and ability to appeal.
"Fannie Mae must publish an accessible list of ineligible properties and detailed, actionable steps for restoring eligibility," the institute said.
The CAI also called for "lending policies that distinguish between buildings with known issues and those that are safe, compliant and striving to improve."
What Crescenzo said his team would like to see improved is access to up-to-date information about approved projects, and not only have an appeals process but ensure that it's one that rectifies issues quickly enough to get loans closed in time whenever possible.
"Anything that's proactive, I can't see as hurting the process. An approved list that covers say 75% of the projects and say they're approved until a certain time period, would be a great help. It hasn't happened yet, but that would be huge. That that would make a difference," he said.
