Stricter Fannie Mae Lending Standards Could Impact Condo Values The Federal National Mortgage Association (“Fannie Mae” or “FNMA”) amended its lending standards, effective January 1, 2022, in a manner that could have a serious impact on the availability of financing and the value of homes in attached condominium associations. (See Fannie Mae Lender Letter (Letter LL-2021-14), dated October 13, 2021.)
By Frederick .T Whitney, sE q. & Bill Curry, sE q.
WHAT IS “FANNIE MAE”? Fannie Mae is a government sponsored entity created for the purpose of providing access to affordable mortgage loans. Fannie Mae purchases loans from banks and lenders and packages them for sale as mortgage-backed securities. Fannie Mae uses the funds from the sale of securities to purchase more loans. This cycle enables FNMA to provide liquidity to the U.S. mortgage market. To be eligible for purchase by Fannie Mae, a loan must meet certain lending qualifications. Because Fannie Mae purchases so many loans its lending standards have a significant influence on the amount and types of financing available. Fannie Mae’s lending terms are often referred to as “conventional loans”.
SO, WHAT CHANGED? On June 24, 2021, Champlain Towers South, a twelve-story condominium project in Florida, collapsed killing 98 people. In response, Fannie Mae issued “temporary” requirements intended to make ineligible, the purchase of loans by FNMA in attached condo projects with “significant deferred maintenance.”
8 The Law Journal Summer 2022 | cacm.org
Fannie Mae requires that lenders looking to sell it a loan in a condominium association provide a questionnaire completed by an authorized representative of the HOA that provides appropriate assurances relating to deferred maintenance, inspections and intended special assessments. (Fannie Mae Form 1076 Condominium Project Questionnaire, dated March 2016 (addendum added December 2021).) The new requirements start at page six of the questionnaire and make specific inquiries to address: 1. Whether there have been any inspections of a project building that identified safety issues; 2. Whether the HOA is aware of any deficiencies (or deferred maintenance) related to safety, soundness, structural integrity, or habitability of the project’s buildings; 3. Whether the HOA is aware of any code violations or orders to evacuate a project building; and/or 4. Whether the HOA intends to levy any special assessments to address deferred maintenance.
