Freddie and Fannie Regulation Effect Condo Associations

I read this on a local Shelburne Vermont forum this morning:

Thought I would pass this one on to anyone in a “Townhouse or Condo Association”! We just found out that Fannie Mae and Freddie Max passed new laws last fall which affect anyone in a condo situation. If anyone in the association owns more than 10% of the property, as in our situation one person owns two units, then no one in the association can get a refinancing with a FIXED interest rate, you can only get a variable rate. Also if you try to sell your unit, the new buyer can only get a variable rate and not a fixed rate of interest. Also if a certain percentage of the units are in default or files for bankruptcy again it affects EVERYONE in the complex and you may be turned down if you try to refinance or get a loan. This could make a big difference if you try to sell because most people want a FIXED interest rate and could turn people away from buying your place!! Has anyone else run into this problem…and if so did you find a way around it??? If so please let me know??

I’ll need to ask some of the local lenders if this is indeed correct. If correct, it will certainly hurt owners of smaller condo developments in the Burlington area.

One Response to Freddie and Fannie Regulation Effect Condo Associations
  1. Sue Ryan
    December 28, 2011 | 6:36 pm

    Fannie and Freddie did change the guidelines. If the condo complex does not meet the standards, Fannie and Freddie will not back the loan at all (even if it is a ARM). The person in this blog may be referring to a portfolio loan at a local lender which are generally ARMs.

    If a buyer is putting down less than 10%, we are required to complete a full review of the decs, by laws, budget, owner occupancy, delinquent dues, etc. Special assessments can be a deal killer too.

    We actually have Fred Peet review the Decs and Bylaws now to make sure they are in compliance with Fannie/ Freddie and state guidelines.

    In general, established projects have been relatively easy to approve. New construction is tough.

    I have pasted some of the guidelines from the Freddie Mac lender site (allregs)…
    Mortgages secured by Condominium Units in Established Condominium Projects that meet all the following requirements are eligible for sale to Freddie Mac:

    (a)
    Project completion requirement for Established Condominium Projects

    All units, Common Elements and Amenities must be complete.

    (b)
    Owner-occupancy requirements for Established Condominium Projects


    If the Borrower will occupy the Condominium Unit as a Primary Residence or second home, there is no owner-occupancy requirement for the Condominium Project


    If the property will be used as an Investment Property, at least 51% of the total number of Condominium Units in the Condominium Project must have been conveyed to purchasers (other than the developer or a successor to the developer) who occupy their unit as a Primary Residence or second home

    (c)
    Project budget requirements for Established Condominium Projects

    The project’s operating budget must be consistent with the nature of the project and appropriate assessments must be established to manage the project


    There must be appropriate allocations for line items pertinent to the type and status of the Condominium Project


    At least 10% of the operating budget must provide funding for replacement reserves for capital expenditures and deferred maintenance based on the project’s age and remaining life, and the quality and replacement cost of major Common Elements.


    There must be adequate funding for insurance deductible amounts

    (d)
    Delinquent assessments for Established Condominium Projects

    No more than 15% of the total number of units in a project are 30 or more days delinquent on the payment of their Homeowners Association assessments.

    42.3: Ineligible projects (08/16/10)

    Mortgages secured by units in any of the following types of projects are not eligible for sale to Freddie Mac:

    (a)
    Project subject to federal or State securities regulations

    Any project that is subject to or has the potential to be subject to the rules and regulations of the U. S. Securities and Exchange Commission or similar State laws, regardless of the project type.

    (b)
    Hotel/Resort Projects

    A Hotel/Resort Project is a project that is operated as a hotel, resort or other type of hospitality entity or that has any of the characteristics or services described in Guide Section 42.10(b).

    Freddie Mac’s determination that a project is a Hotel/Resort Project is conclusive.

    For further instructions on determining whether a project is a Hotel/Resort Project, see Section 42.10(b).

    (c)
    Project with multi-dwelling units

    A project in which an owner may hold a single deed evidencing ownership of more than one dwelling unit.

    (d)
    Project with non-incidental commercial space

    A project in which more than 20% of the total square footage of the project is used for non-residential purposes.

    (e)
    Common-interest apartment project

    A project in which individuals have an undivided interest in a residential apartment building and land on which the building is located, and have the right of exclusive occupancy of a specific apartment unit in the building. The project or building is often owned by several owners as tenants-in-common or by a Homeowners Association.

    (f)
    Project with fragmented- or segmented ownership

    Ownership that is limited to a specific period on a recurring basis such as the 15th week of the year, or for a limited period such as for the subsequent five years. Timeshare projects are examples of fragmented or segmented ownership.

    (g)
    Timeshare project

    A project in which there is an arrangement under which a purchaser receives an interest in real estate and the right to use a unit or Amenities, or both, for a specified period and on a recurring basis.

    (h)
    Houseboat project

    A project comprised of boats that have been designed or modified to be used primarily as dwelling units.

    (i)
    Attached Condominium Project that is legal nonconforming

    An attached Condominium Project with legal non-conforming use and the jurisdiction in which the project is located does not allow the rebuilding of the improvements to current density in the event of their partial or full destruction. This restriction does not apply to Detached Condominium Projects or if the jurisdiction in which the project is located allows the rebuilding of the improvements to their current density in the event of their partial or full destruction.

    (j)
    Project in litigation, arbitration, mediation or other dispute

    A project for which the Homeowners Association, or developer if the project has not been turned over to the unit owners, is a party to current litigation, arbitration, mediation or other dispute resolution process and the reason for the dispute involves the safety, structural soundness or habitability of the project.

    (k)
    Project sold with excessive Seller contributions

    Any project with respect to which the builder, developer or property seller is offering contributions that may affect the value of the subject property; examples include, but are not limited to, rent-backs or leasebacks, payments of principal, interest, taxes and insurance (PITI) or Homeowners Association assessments for any period of time, and undisclosed contributions.

    (l)
    Project with excessive single investor concentration

    Any project in which a single entity owns more than 10% of the total number of units. If the project has fewer than 10 units, any project in which a single entity owns more than one unit.

    (m)
    Project with fractured interest

    Any project comprised of unit owners who own their own units and renters who rent or lease units from the developer or third party. This restriction does not apply to a converted project in which the unsold units are rented or leased by tenants under tenant-protection laws, and the developer or the developer’s successor will sell the units once they have been vacated.

    (n)
    Continuing Care Retirement Community (CCRC)

    A CCRC is a residential project designed to meet the health and housing needs of seniors as their needs change over time. CCRCs are distinguished from age-restricted communities in that residents in CCRCs contract in advance for a lifetime commitment from the facility to care for them, regardless of the future health or housing needs. CCRCs may also be known as Life-Care Facilities.

    (o)
    Any Condominium Project that Fannie Mae has rejected

    Sue Ryan

    Union Bank

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