Insufficient Project Insurance

After the collapse of the Surfside condominium project in Florida in 2021, which killed 98 people and exposed the association’s poor insurance coverage, Fannie Mae tightened their guidelines on HOA master insurance requirements for condominium projects. Now many larger condo projects have insufficient HOA master insurance coverage for the replacement cost of the project. In February of 2023, Third Laguna Hills Mutual, a 6,100+ unit condo project in Orange County became Fannie Mae ineligible due to being almost 1 BIL under insured.

Condominium projects that have insufficient HOA master insurance are Fannie Mae ineligible and considered “non-warrantable”. To obtain financing on a non-warrantable condominium, one must use a lender that will not sell the loan to Fannie Mae but will either hold on to the loan in a portfolio or sell to an investor who will also hold on to the loan in a portfolio. The reason there are very few lenders for non-warrantable condominiums is that most lenders, including banks, mortgage banks, and wholesale lenders, want to have the option of being able to sell their loans in the secondary market.

The federal pullout means prospective buyers, or owners who are looking to refinance, will have few financing options. While buyers can still obtain VA-approved loans or more expensive non federally backed mortgages, any non-conforming loans are generally more expensive. Many lenders claim to have loans for projects with insufficient HOA master insurance, but their rates make it unaffordable to consider. These lenders are called non-QM lenders, and only a few will consider non-warrantable condominiums.

Universal Capital Mortgage and Coast 2 Coast Funding Group are condominium specialists. As a direct lender, we can offer 30 year fixed conventional loans on condominium projects in CA and OR that have insufficient HOA master insurance. We require the home buyer to obtain a personal HO6 insurance policy with 20% of the purchase price in dwelling coverage. The loans are underwritten to the same guidelines that Fannie Mae uses and rates are only slightly higher.

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