Fannie Mae and Freddie Mac’s underwriting changes, in addition to severe new restrictions by private mortgage insurers, could tighten the availability of loans to condo buyers in the future. The new restrictions will also make it harder for condo owners to refinance.
Fannie Mae’s new procedures requiring loan officers to research upfront the key characteristics of condo projects — their legal documentation, the adequacy of condo association operating budgets, percentage of unit owners who are late on association-fee payments, percentage of space allocated to commercial use and percentage of units owned by investors — must now be performed upfront by loan officers. Not only is this time-consuming and costly, but Fannie Mae expects the lender to warrant the accuracy of its research.
Fannie Mae spokeswoman Marilyn Kornfeld said the new procedures are designed to “protect borrowers and manage increased credit risk in the market.” But some lenders may discontinue condo financing because of all the restrictions and changes.
Freddie Mac has issued similar new guidelines. Freddie Mac spokesman Brad German acknowledged that the changes would make condo loans “more labor- and paper-intensive for the lender” but said weak sales, growing numbers of financially troubled projects and declining property values made them necessary.

Source: WashingtonPost.com (Saturday, April 19, 2008)

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