Fannie Mae Sets New Condo Restrictions After Florida Collapse

Fannie Mae is instituting temporary requirements that prohibit the purchase of mortgages secured by condominiums or cooperative units with important directives on deferred maintenance and public repairs related to unsafe conditions.

The requirements will go into effect for full loans purchased beginning January 1, 2022 and mortgages delivered in securitized funds during that same time period.

The government-sponsored company is instituting this as an interim measure as it examines how it can mitigate the growing risk of dangerous property conditions in a market where buildings are beginning to deteriorate due to age. This has been exemplified by some recent public safety incidents in Florida, such as the deadly collapse of a condo in Surfside building in June and debris from half the balconies in a 23-story building in Sunny Isles Beach that broke and endangered those below last month, according to a Bloomberg report.

Workers repair balconies at the Winston Towers 700 condo building in Sunny Isles Beach, Florida, USA, on Friday, September 10, 2021. Half of the balconies in the 23-story high-rise condo building were in need of repair, Sometimes they broke into pieces and threatening Units below.

Eva Marie Uzcategui / Bloomberg

“With the new temporary requirements in place until further notice, we are also in the process of conducting a more in-depth analysis of the challenges surrounding aging condo and cooperative infrastructure”Said Jodi Horne, director of single-family collateral risk management at Fannie Mae, on Oct. 13. Blog.

Condo projects that Fannie will not purchase as collateral for the loan include those that require a full or partial evacuation for seven days or more to complete repairs. Buildings where the evacuation time is not specified will also be prohibited.

Additionally, Fannie lists three categories of deficiencies, defects, substantial damage, or deferred maintenance that would prevent a loan from being purchased: those that affect security, soundness, integrity, or habitability; those that need substantial repairs or improvements; or those that damage the main mechanical or structural elements of the building, such as the roof, the plumbing or the electrical system. Failure to obtain a certificate of acceptable occupancy or passing local inspections or recertifications could also disqualify a loan.

Projects will not be eligible until necessary repairs or authorizations have been completed and documented.

In addition to these measures, Fannie requires documentation for properties with special assessments related to the amounts involved and the purpose, even if they have been paid in full.

Risks in the condo and co-op market represent one of the challenges facing Biden’s management in its effort to gain more support for affordable housing. Some affordable housing advocates are pushing for more investment in the condo and co-op market because prices tend to be relatively lower than traditional single-family homes.

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