IT MAY BECOME IMPOSSIBLE TO GET A NEW MORTGAGE IN MANY CONDOS

As if condos didn’t have enough problems, Fannie Mae and Freddie Mac have just come out with new guidelines that condos must follow. Fannie Mae and Freddie Mac are government-sponsored agencies that purchase large quantities of home loans to keep money circulating throughout the home mortgage economy.  They won’t purchase these loans any longer unless:

Delinquent assessments for Established Condominium Projects
No more than 15% of the total number of units in a project are 60 or more days delinquent in the payment of their HOA assessments.

The Condo Must Have a Reserve Study

The reserve study must comply with the following requirements:

  1. The reserve study generally must include:
  2. An inventory of major components of the project
  3. Financial analysis and evaluation of current reserve fund adequacy, and
  4. Proposed annual reserve funding plan

                   2.A reserve study’s financial analysis must validate that the project has appropriately allocated the recommended         reserve funds to provide the Condominium Project with sufficient financial protection comparable to Freddie Mac’s standard budget requirements for replacement reserves

               3.The reserve study’s annual reserve funding plan, which details total costs identified for replacement components, must meet or exceed the study’s recommendation and conclusion

                4.The most current reserve study (or update) must be dated within 36 months of the Seller’s determination that a Condominium Project is eligible

            5. The reserve study must be prepared by an independent expert skilled in performing such studies (such as a reserve study professional, a construction engineer, a certified public accountant who specializes in reserve studies or any professional with demonstrated experience and knowledge in completing reserve studies)

                 6. The reserve study must meet or exceed requirements set forth in any applicable state statutes

           
7.The reserve study must comment favorably on the project’s age, estimated remaining life, structural integrity and the replacement of major components

If the Seller relies on a reserve study that meets the requirements of this section, the project’s budget must contain appropriate allocations to support the costs identified in the study.

Understand that it Fannie and Freddie don’t back condo loans, it’s going to be real tough to find buyers for your condo unit because they won’t be able to obtain a mortgage. So many condos have no reserves at all. So many condos have not performed a reserve study in years. So many condos are approaching their 40 and 50 year certification process and are going to need huge sums of money to bring the property into repair.

I helped a condo fill out a Fannie/Freddie questionnaire today about the condition of the property, the amount of reserves on hand, who performed the study, if there are reserves in the current budget, if there are any pending violations. The questions go on for several pages. They want to know a lot about the physical and financial condition of your property.

Within the next few months, or sooner, you will begin to hear stories about potential buyers who simply were not able to procure a mortgage because the building could not fulfill Fannie and Freddie’s requirements. It’s going to hurt the real estate market. Never mind the fact that insurance rates are soaring and the complete waiving of reserves is likely to be prohibited. Your income may prevent you from Inasmuch as typical condo monthly assessments are going to go up, many people simply won’t qualify for a mortgage because their income is insufficient.

The foregoing are yet additional reasons why The Florida Legislature better pass some laws this year requiring the mandatory funding of reserve accounts, so at least this mess may get better in a few years. I think it will happen. I also think insurance will continue to go up too. So will security, so will landscaping, so will management and so on and so on and so on.

The cost of everyone’s condo assessments will wind up being more than their mortgages in some places. But after so many decades of being allowed to pass the buck and kick the can down the road, this is not unexpected. In fact, it was very predictable. Just read my blog from May 2018, imploring The Florida legislature to make reserves mandatory.

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