Feds Won't Back Loans at Troubled Condos
High prices and mortgage rates are enough of a challenge for condo homebuyers, but many are finding that they can't even get loans for desired homes.
Fannie Mae, Freddie Mac and the Federal Housing Authority (FHA) together issue or insure more than 80% of the single family home loans in the US. Fannie an Freddie, the government-backed entities that buy mortgages from loan originators, in 2022 issued new guidelines saying that they wouldn't acquire loans for condos that have significant deferred maintenance needs or structural integrity concerns.
Condominium communities across the country are beginning to find that they have been restricted by the nation's largest home lenders. Most banks don't issue mortgages without selling them to Fannie or Freddie, and won't lend in community associations that have been restricted. Federal uncertainty over a Brentwood complex's maintenance issues has left sales of condos there "at a standstill" for anybody other than cash buyers, according to realtor Mark Gellman with eXp Realty.
"It's a nightmare. No lender wants to take a risk on it" Gellman said.
A smaller buyer pool leads to lower property values. At the same time, these communities are struggling with large and ongoing special assessments to address the maintenance and reserve fund shortfalls that have accumulated over decades, further scaring away buyers and reducing property values.
Condo communities can remain blacklisted for years until they have completed necessary repairs and can demonstrate to Fannie and Freddie that they no longer have outstanding maintenance issues. That can leave home sellers on ice for a long time.
Prudent budgeting and adequate reserve allocations can save associations and homeowners a lot of time and money in the long run. It might seem expensive in the short run, but over time adequate funding leads to happier, better functioning communities with greater property values. The harsh medicine of special assessments and prudent reserve contributions is the only way that communities can survive, let alone thrive.