“Expert Guidance for Condos on Fannie Mae’s Mortgage Blacklist”

The firm’s latest Miami Herald “Real Estate Counselor” column was authored by Eduardo J. Valdes and appears in Sunday’s edition of the newspaper. The article, which is titled “Here’s Some Expert Guidance for Condos on Fannie Mae’s Mortgage Blacklist,” focuses on the recent news in the Herald on the growing lending blacklist by the colossal government-sponsored Fannie Mae mortgage buyer and backer. It discusses new guidance from the industry’s leading voice on how associations should respond to being included on the list. Eduardo’s article reads:

. . . The article reports that the total number of Miami-Dade, Broward and Palm Beach condo buildings on the confidential database as of March was 696, which accounted for nearly half the 1,438 buildings that Fannie Mae had deemed ineligible in the entire state. The increase during the last few years has been driven by the stricter requirements for the mortgages it backs that were instituted after the 2021 collapse in Surfside.

The article chronicles how banks and mortgage lenders typically adhere to the standards set by Fannie Mae, so the only option for buyers seeking financing at affected properties are non-conforming mortgages that can be significantly more expensive.

To help address and respond to inclusion on the blacklist, the leading organization representing the interests of community associations recently issued new guidance for affected associations and unit owners. These new recommendations provided by the Community Associations Institute were developed with the help of highly experienced professionals, and they come on the heels of its survey of more than 700 board members, property managers and business partners.

The survey found that 42 percent of the respondents were not sure if their building is on the list, and 37 percent acknowledged they took steps to determine whether it was after receiving loan denials. Forty percent admitted that their condo community may have characteristics such as deferred maintenance, insufficient reserves and pending litigation that could lead to its inclusion, and 64 percent of those that were included in the list reported it was negatively impacting sales and property values.

The group’s new guidance states that while access to Fannie’s list of ineligible condominiums is restricted to lenders, associations can work with financing providers to request and obtain information on if and why they are included. It also says associations can collaborate with lenders to use Fannie Mae’s online Condo Project Manager tool to gain more information on their status.

If they learn that the reason for their ineligibility is due to insurance issues such as a deductible that exceeds five percent of the policy limit, no guaranteed replacement cost, or coverage based on Actual Cash Value rather than replacement cost, the guidance suggests they should work with insurance brokers to make changes to meet the corresponding standards and then submit updated policy declarations to the government-sponsored enterprise and prospective lenders.

For those on the list due to structural or mechanical issues, CAI advises that they make the identified repairs an immediate priority. Doing so also entails providing Fannie and lenders with contractor invoices, before/after photos, engineer reports, and a letter from a qualified inspector confirming completion.

Inadequate/missing reserves or reserve studies are also common issues, for which the organization recommends conducting new studies using professional engineers that include all the required structural and mechanical elements together with a 30-year replacement schedule, as well as the current state of the association’s financial condition. The association should then initiate a reserve funding plan that aligns with the findings of the study, and it should submit the updated reserve study and board resolution adopting the new funding plan to Fannie Mae.

Those deemed ineligible due to pending litigation that could result in significant financial liabilities for the association should provide Fannie with a summary of the matter from the association’s attorney as well as proof of insurance coverage for any ensuing legal judgments and fees.

CAI’s guidance concludes by stressing the importance for the boards of directors of the associations for condominiums on the list to take all the necessary corrective actions, and submit the relevant and updated documents and information. Those who do so and are still unable to find relief are advised to contact their representative members in both chambers of the U.S. Congress to inform them of the situation and stress the significance of the mortgage giant’s decisions and actions. . .

Eduardo concludes his article by noting that condo-owner and board-member constituents should remind their U.S. Senators and Representatives that Fannie Mae was originally chartered through an act of Congress and continues to operate under a congressional charter, which states that the government-sponsored enterprise’s primary purpose is to promote access to affordable mortgage financing. He writes that by taking a heavy-handed approach in applying what many consider to be overly stringent criteria for those properties that land on its lending blacklist, the now for-profit shareholder-owned corporation appears to be straying from its core mission. He suggests that congressional oversight and engagement may be necessary to ensure that its overarching goal is not lost.

Our firm salutes Eduardo for sharing his insights on this important new guidance from CAI with the readers of the Miami Herald.  Click here to read the complete article in the newspaper’s website.

Eduardo and the firm’s other South Florida community association attorneys write about important matters for associations in this blog and our Miami Herald column, which appears every two weeks on Sundays, and we encourage association directors, members and property managers to click here and subscribe to our newsletter to receive our future articles.