Mortgage

New HOA questionnaire could torpedo condo financing under Fannie, Freddie – Orange County Register

New HOA questionnaire could torpedo condo financing under Fannie, Freddie – Orange County Register
Written by Publishing Team

A terrifying scenario looms for apartment buyers applying for certain types of federally backed mortgages.

If you’re selling or looking to buy an outbuilding in a community with five or more outbuildings, traditional financing from mortgage giants Fannie Mae and Freddie Mac may soon become elusive..

Starting January 1 for Fannie and starting February 28 for Freddy, the mortgage giants are putting the nails into a requisite HOA survey. The new questions ask applicants questions about the structural integrity of the community and whether any violations of the rules are to be expected.

No doubt the updated lending mandates for Fannie and Freddie are in response to the Florida apartment tower that killed 98 people last June 24. Years of deferred maintenance at the Champlain Towers in Surfside caused the 12-story building to collapse.

Responding to agencies comprehensively and completely may force lenders to reject your mortgage application. (Remember: Mortgage lenders finance a loan, then sell it to Fannie or Freddy.)

“Yes, lenders are rejecting projects even for a simple private assessment of repairs now. One apartment project approval expert, who asked not to be named because he is not his company’s media spokesperson, said, “Things are flowing at the moment because the guidelines started on January 1st.” Soon, we’ll see the effects reach all apartment markets. I’ve only seen it affect projects with major issues at this point; Which means (the project) has rule violations and millions of dollars of repairs are underway.”

Answering these questions truthfully or perhaps with guesswork may result in liability in the form of future lawsuits against HOA stakeholders such as the property management company, board members, inspectors, engineers, and the association.

If the questionnaire is not fully answered because the answers are unknown or not specified, it may mean that your purchase or refinancing has been torpedoed.

Here is a set of questions included in the Fannie Mae Project Survey Form 1076 for the Condominium Project (published December 2021 and updated to eight of five pages):

Q: Is the HOA aware of any safety, integrity, structural integrity or habitability deficiencies in the project building(s)?

Actual response: If management were not aware of any shortcomings, for example, and I answered as such, should they have reasonably known that these misfortunes could come later?

Q: Is the project, in the future, expected to have such violations (zoning ordinances, ordinances, etc., related to safety, integrity, structural integrity, or habitability)?

Actual response: For the sake of peace, how does one determine whether judicial laws that have not yet been written lead to new violations in the apartment complex?

These questionable questions might be akin to a winning lottery ticket for any attorney who lives in the world of HOA litigation.

Why is this such a big problem? The nation has a huge community of really old apartments and many of them are backed by Fannie Mae and Freddie Mac mortgages.

In the United States, there are as many as 156,000 housing societies and co-ops with between 27 and 32 million Americans, according to the Community Cooperatives Institute.

“Seventy percent of all condo loans in the United States are fanny or freddy (subsidised),” said Dawn Bowman, CAI’s senior vice president of government affairs. “60-70% of all apartment complexes are over 30 years old.”

Fannie Mae has a published list of 82 “unavailable” housing projects in California including the Marina City Club in Marina del Rey, which is $80 to $140 million in needed repairs according to a report last year. This 10-acre complex is one of nearly 1,000 “out of stock” housing projects nationwide. For Fannie Mae, “Not Available” means the property is not eligible for agency purchase.

One mortgage executive told me that Fannie is making the rounds, emphasizing new condo questions during lender visits. So, don’t be surprised if this unavailable list explodes as Fanny is gathering more information.

To be fair, Fannie and Freddie need to dig deeper to assess and consider the structural risks of an apartment before buying those mortgages from lenders. Mortgage giants may also alienate the condo community for other reasons, such as a lack of budget reserves.

If your loan is denied via Fan or Fred HOA certification answers, you may be able to get financing on what the industry calls an unsecured loan. You should expect to pay perhaps half to one point higher in rate than traditional financing. You may also have to make a larger down payment or have more equity left than Fannie’s requirements.

But Buyer Beware: Unqualified mortgage lenders who offer unexplained exotic mortgages are not loan approval either.

For example, California-based LendSure has a checklist of apartment guidelines to help determine investor risk. The three common elements seen are investor concentration (the number of rentals in the pool), individual investor (does a single person or entity own a pool of units), and condo pool litigation, according to Joe Lydon, co-founder and general manager of LendSure.

Why so much deferred maintenance? Unit owners often resist increased HOA fees or private assessments for repairs and upgrades. Complex building inspections can range from $15,000 to $50,000 depending on the number of units, according to Bowman.

“The Institute of Community Associations is pushing for laws mandating reserves studies and building inspections,” Bowman said. CAI is also asking Fan and Fred to give the HOA more time to be able to address several of the new HOA questions. “Five years to intensify inspections of buildings required.”

Freddy Mac rate news

The 30-year average fixed rate was 3.56%, the highest since March 2020 and an 11 basis point increase from last week. The 15-year fixed rate was 2.79%, up 17 basis points from last week.

The Mortgage Bankers Association reported a 2.3% increase in the volume of mortgage applications over the past two weeks.

minimum: Assuming a borrower obtains a 30-year average flat rate on a matching loan of $647,200, last year’s payment was $279 less than this week’s payment of $2,928.

What I see: Domestically, well-qualified borrowers can get the following point-free fixed rate mortgages: 30-year mortgage at 3.125%, 15-year conventional at 2.75%, 30-year conventional at 3.5%, and 15-year conventional top-balance (from $647,201 to $970,800) at 3.25%, the 30-year conventional high balance at 3.5% and the jumbo 30-year constant at 3.375%.

Noticeable: The 30-year FHA matching loan is limited to $562,350 in the Inland Empire and $647,200 in Los Angeles and Orange counties.

Vacation loan program for the week: 30 years fixed at 3% at a cost of 2 points.

Jeff Lazerson, a mortgage broker. He can be contacted at 949-334-2424 or jlazerson@mortgagegrader.com. His website is www.mortgagegrader.com.

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