No More Conventional Mortgages for 23K U.S. Condo Projects

The New York Times is reporting that 23,000 condo buildings are likely to lose FHA lending approval, making it very difficult for condo buyers or owners to receive financing for new units.

According to the article, “stellar credit and steady income will go a long way in helping borrowers secure a home mortgage, but they may not be enough when it comes to buying or refinancing in certain condominium buildings. Stricter guidelines that govern which buildings are approved for conventional mortgages — rolled out by three government agencies in stages since December 2008 — are locking out thousands of buildings nationwide.”

With defaults causing massive losses at Fannie Mae and Freddie Mac, the industry is tightening standards to strengthen their balance sheet. According to the National Association of Realtors, 23,000 buildings are likely to lose their FHA approved status over the next few months. Approximately 2,200 buildings have already lost their status. If a project is not on the approved list, it will be very difficult for buyers to get any type of financing.

According to the Times, “Lists of approved buildings are available online at Fannie Mae and the F.H.A.Fannie Mae’s guidelines typically preclude it from buying a new-purchase condo loan from a lender if more than 15 percent of the owners in the condo development are 30 days or more late on monthly maintenance fees.”

To be approved by FHA, Freddie, and Fannie, projects must meet the following requirements:

– Th Condo association must set aside 10% of its budget for maintenance and reserves
– New developments are ineligible for financing unless 70% of units have sold or are under contract for Freddie and Fannie and 30% for FHA
– 50% of a building’s units must be owner-occupied
– No more than 10% of a building’s units may be owned by a single investor

While it’s not clear which downtown Austin condo requirements are at risk of losing their approved status, a loss of approval would make units very difficult to sell. The Times article recommends that condo owners review the condo association financials and related forms to ensure compliance.

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