Freddie Mac tightens condo and manufactured home loan rules

Freddie Mac has tightened some requirements for mortgages on hybrid factory-built homes that are similar to traditional houses and condo refinances.

Freddie Mac clarified that including site-built houses in appraisal comps for loans on hybrid manufactured homes is a necessity, not an option, when there aren't similar properties nearby.

The government-sponsored enterprise also specified that condo loans in its no-cash-out refinance program for low and moderate income borrowers aren't exempt from project reviews unless they meet standard criteria for this. 

In addition, Freddie noted that these refinances have to comply in particular with critical report and evacuation order project review requirements in the buildings involved have 11 units or more.

The updates build on adjustments the government sponsored enterprises have made around more affordable property types, with the aim of balancing goals around increasing in sustainable homeownership access with risk management that sometimes frustrates lenders.

Additional updates

In line with that thinking, Freddie also adjusted rules for third-party contributions, loosening one of them but also emphasizing that they have boundaries.

The GSE is providing more leniency for certain gifts from a "related person," which Freddie generally defines as a blood relative or someone with family-like ties such as a parental guardian.

Freddie is allowing exemptions from interested party contribution requirements when the donor is the property seller is a related person, a business that individual owns, a trust the RP established or if their estate is involved.

"The requirement that the donor is not the builder or another interested party and has no affiliation with any other interested party to the transaction still applies," the enterprise added.

Freddie also adjusted some parameters for requirements related to information that must be provided about sources for large deposits, which typically have been those that total more than 50% of borrowers' total monthly qualifying income, or 10% of their total eligible assets.

The GSE noted that this applies in particular to non-U.S. contributions and for deposits that meet the following requirements: received no more than 60 calendar days before the time of application receipt, on or prior to the note date, and reflected in loan file documents.

Freddie also added a caveat to its definition of a retail mortgage, noting that the involvement of a broker or correspondent will only exclude a loan from that definition if the third-party originator is not affiliated with the lender.

Although the GSE tightened appraisal rules for certain manufactured housing loans, it loosened one for 2-4 family properties.

Exhibits for these appraisal reports will now only require a floor plan "when it is atypical or functionally obsolete" within the context of what Freddie defines as a market area.