Fannie Mae, Freddie Mac update condo and co-op unit policies

Fannie Mae on Wednesday released criteria for loans on apartments within condominiums and cooperatives that will replace stop-gap measures for buildings with significant deferred maintenance or public repair directives for unsafe conditions.

The updated measures for financially or physically distressed buildings come a little more than two years after a building collapse in Surfside, Florida led to temporary reforms.

The new project review requirements become effective Sept. 18 and follow closely on the heels of the government-sponsored enterprise's July mandate for use of Condo Project Manager, a technology platform that provides access to data on buildings unavailable for financing.

The updates aim to better define loan purchase criteria in this area and will end Fannie's review of project eligibility waivers for insurance company deficiencies.

Fannie's competitor, Freddie Mac, also released updates to its review criteria that go into effect on Sept. 18 and said it would add a new status to the project assessment requests on the platform it uses to disseminate information about buildings, Condo Project Advisor.

Freddie plans to add the new "project certified" status for loans with settlement dates starting on Sept. 4 at the latest and as early as July 28 for those with the operational readiness to adopt sooner. There are limits to what building requirements get assessed in a PC certification. 

Fannie will continue to identify projects where loans are ineligible for purchase as "unavailable" in its system and will keep barring purchases of them.

Both GSEs won't be buying loans on buildings that are currently under evacuation orders relating to unsafe conditions. They also will be barring the purchase of any loan on a unit in need of repairs that are critical or that exceed $10,000. In addition, Fannie and Freddie will be requiring a review of any structural or mechanical inspection report done within the last three years and information about special assessments.

The Community Home Lenders of America, which has called for more public information about condo/co-op standards, was cautiously optimistic about the release of the updated standards but wanted to take a closer look at the specifics before providing more detailed feedback.

"We need time to review these updates but providing more guidance and transparency is a step in the right direction in addressing the critical repairs and significant maintenance needed on condos," said Scott Olson, executive director of the CHLA.

Meanwhile, Fannie on Wednesday also followed up on plans to make permanent a temporary restriction introduced in 2020. It forbids buying single-family loans more than six months old on a flow basis, with one exception for HomeStyle renovation loans, which don't get delivered until the project involved is complete. These loans can't be more than 15 months old.

Seasoned loans over a year old can continue to potentially be delivered on a negotiated basis.

(The clock starts ticking on the first payment date and ends on the purchase ready date for whole loans or mortgage-backed security pool-issue date for those delivered into MBS.)

Another requirement Fannie added with an exception was a need for at least one borrower to be the owner of a property at application for limited cash-out refinance loans.

The exceptions are homes acquired through divorce, inheritance, legal settlement or via a primary beneficiary of a living trust.

This will take effect for new loan applications starting Sept. 1.