FNMA Skews HOA Demographics

I hear that more than 90% of condo loans in 2011 conformed to FNMA guidelines. In 2010 the proportion was much lower at <50%. FNMA guidelines have been made progressively more stringent since 2009 and now include many related to the Condo "Project" or development and the performance of HOAs [see https://www.efanniemae.com/sf/guides/ssg/]. These trends continue. My paraphrase for the most important criteria being applied ...

1. Development must meet required eligibility criteria within 3 months preceding the date of any loan for a unit
2. All HOA units, common elements, and facilities must be fully developed
3. All facilities must be owned by unit owners or the HOA
4. HOA is not named as a party to pending litigation related to safety, structural soundness, habitability or functional use of the development
5. Units in a development must be covered by appropriate hazard, flood, liability and fidelity insurance policies that comply with local, state and Federal insurance laws
6. No more than 20% of total square footage is used for non-residential purposes
7. No single entity (individual, investor group, partnership or corporation) may own more than 10% of units in the development.
8. No more than 15% of units are 30 days or more late paying HOA dues
9. At least 51% of total units in the development must be conveyed to purchasers as principal residences or second homes (applies to investor loans)
10. HOA budget must be adequate for the type of condominium property
11. At least 10% of HOA budget must provide funding of reserves for capital expenditures and deferred maintenance
12. The amenities and facilities (including parking and recreational facilities) cannot be subject to a lease between unit owners or the HOA and another party
13. HOA budget must provide adequate funding for insurance deductible amounts
14. Having multiple units on a single meter must be common and customary in the local market [eg Boulder Water]
15. The development must be demonstrably well managed
16. The management contract should be for a reasonable term
17. The management contract’s termination provision must not require a penalty payment or advance notice of more than 90 days
18. Common elements & facilities (such as parking and recreational facilities) must be consistent with the nature of the development and competitive in the local marketplace

My conclusion is that HOA Boards need to be very aware of changes being made by FNMA and actively monitor their performance against key criteria. To fail in this regard may result in unexpected changes in demographics; refinances denied, sale of condos to only those purchasers who can afford non-conforming loans ... or pay cash - usually investors who intend to instal renters. A downward spiral ensues as more and more HOA "members" [the voting decision makers] live off campus [particularly in small HOAs].

Have you seen this happen in your HOA?

Keith,
Not only FNMA but the guidelines apply to FHA and almost all lenders use them as well now for condo's.If your condo association allows rentals you, can add more strict rules and regulations to that list.
Most conventional lenders, like banks, sell the mortgages they approve so they also need to meet those same guidelines. Since FNMA (Fannie Mae )is one of the biggest buyers of those mortgages then obviosly they only buy mortgages that conform to theit guidelines as do all the other companies that buy mortgages.
It is almost impossible to get owners to look at this whole situation seriously. Many owners don't understand and don't care how the loan process now works until they are unable to sell their unit. If you live in a condo your mortgage is probably owned by some government backed program like FNMA even though you are making mortgage payments to a bank.
Going forward very few condo mortgages will not have to fit within those guidelines.

For anyone following this topic, as you know, the Questions and Requirements are constantly changing.

Below are links from a “Colorado Homeowners Association Law Blog” that I follow: (The “Perlmutter Letter” contains some interesting statics).

http://www.cohoalaw.com/from-capitol-hilllegislation-cai-national-believes-fha-action-on-condos-transfer-fees-in-pipeline.html

http://www.cohoalaw.com/from-capitol-hilllegislation-congressman-perlmutter-weighs-in-on-onerous-fha-certification-requirments.html

http://www.cohoalaw.com/uploads/file/Perlmutter%20FHA%20Letter.pdf

Ellie,
The information on the links you provided are from the caionline.com website. They are a great organization that are fighting some of these strict guidelines. CAI is the "condo association institute" and they have accomplished quite a bit and yes the rules continue to change. If you go to their website click on the issues and advocacy button /mortgage matters and then check the left side of the page. There are links to a wealth of information on things like mortgages and the FHA etc.

It should be noted though that although the CAI and some realtor groups etc.are fighting many of these strict regulations, the one thing that is not being challenged ( at the moment ) are restrictions on rental ratios. That is unfortunate because in today's real estate market, renting is sometimes the only option for some owners.

Being unable to sell or rent can create foreclosures and owners simply walking away from their mortgages and maintenance fees adding more burden on other owners.

Thank you all for your interesting comments. Yes, the FHA, VA and other institutions contribute to this effect. I hadn't included them because they haven't been important to my HOA but the effect is no doubt real.

The "Individual Condominium Unit Appraisal Report" [FNMA Form 1073] is the form that Melissa references with the questions that must be answered and "warranted". To fail these questions in some regard results in a condo deemed "non-warrantable". In my experience the form is filled out for an HOA by the Management Company. This raises the additional very important observation that an HOA Board needs assure that the Management Company is answering the questions correctly if property values are to be properly represented.

So, my conclusion is that HOA Boards carry a great deal more responsibility with respect to "preserving / enhancing" property values in this rapidly changing climate. Not only do they need to actively monitor changing loan qualification "guidelines", but also how those qualification questions are being answered month to month by the Management Company. And then they need to actively consider ways in which loan qualification can be maximized for those wishing to sell their condos. This is not limited to simple repair, replacement and reserves but includes considering rental restrictions and other tools for balancing the interest of owners in a community.

Doesn't this make an otherwise thankless unpaid job sound interesting? KJ