The amount of condominium projects added to Fannie Mae’s ineligible list has surged in the last year by over 30%. My personal experience is that there are two large contributing factors. One, larger garden style condo projects spread out over many acres are under-insured for fire insurance. The combination of the insurance company’s replacement cost estimates being extremely high, as well as Fannie Mae’s estimates of what a project’s replacement value should be, are the main contributors. And two, the new guidelines pertaining to any deferred maintenance a condo project might have, and if there is a pending special assessment to cover it.
Prior to this year, the above two issues did not exist, but with the Surfside condo collapse in Florida a few years ago, Fannie Mae decided to review their condo guidelines. The majority of loans we funded on non-warrantable condos up until this year dealt mostly with pending HOA litigation. Mostly SB800 claims made by an HOA against the developer. Coming in second was high single entity ownership, where one entity owned more than 20% of the entire complex.
Many non-Qm lenders claim they have non-warrantable condo programs, and they do. They can make exceptions in some cases on minor guidelines. But the bottom line is most of them use the Fannie Mae CPM (condo project manager” tool when approving a condo project. And if the project in question is on the ineligible list, they are not going to approve the loan.
As someone who has funded 600+ non-warrantable condo loans, in excess of $250,000,000, I cannot emphasize enough the importance of using a well-established lender to process a non-warrantable condominium loan. I also emphasize that sellers and listing agents disclose up front the issues that are affecting the project eligibility. 50% of my loan production comes from conventional lender fall out. Situations where the lender “thinks” they can get it done, but has no idea on how to get it done. All this does is waste people’s time and money.
The bottom line is that the amount of non-warrantable condominiums is only going to increase over time. Fannie Mae is not going to loosen up their guidelines after the massive loss they incurred with the Surfside condo collapse. So buyers, sellers and agents must be prepared, and the best way is to consult an expert. Listing agents should know exactly what the issues are with their properties BEFORE listing and disclose it. Buyer’s agents should educate buyers on the issue and refer them to a loan specialist who can further explain the issues and the lending options available. With education, disclosure, and lending expertise, a non-warrantable condo transaction can run just as smooth as a regular one.