Earlier this year, Fannie Mae stopped guaranteeing mortgages in new or newly converted condo developments in which fewer than 70 percent of units have been sold or are under contract. Fannie’s previous rules set the cutoff at 51 percent. Freddie Mac recently sent a bulletin to sellers and servicers announcing plans to adopt similar restrictions beginning July 1.
The restrictions essentially raise mortgage rates for otherwise conforming mortgages (i.e. under $417,000 in Texas) where the condo development is effected by any of the following issues:
– A new project in which 30% of units have not been sold (or under contract) at the time of completion or closing.
– Existing condo communities where 15 percent or more of owners are delinquent on their association fees by at least 30 days.
– New or existing condo communities where more than 10 percent of units are owned by a single entity.
– New or existing condo communities where more than 20 percent of the total space in a project is used for nonresidential purposes.
Fannie has some flexibility in its presale rules. Developers who don’t meet the 70 percent threshold can ask Fannie to waive the restrictions in certain circumstances. So far, more than 90 exemptions have been provided nationwide.
These changes should not have a dramatic effect on the largest and highest profile projects as new units in the big projects are typically priced well over the conforming threshold. For the lower cost high-rise projects where loans are likely to conform, sales rates have been high. Most of the major projects look on track to hit 70% by the time of completion. Most likely to be effected are smaller low-rise projects near downtown and condo conversions in downtown.