OVERVIEW OF FANNIE MAE AND FREDDIE MAC
Fannie Mae and Freddie Mac are known as government-sponsored enterprises (GSE), a quasi-governmental entity established to enhance the flow of credit to specific sectors of the American
economy. Created by Congress, these agencies are privately held companies under the oversight of the Federal Housing Finance Agency (FHFA) to help provide public financial services. These GSEs do not lend money to the public directly; instead, they guarantee third-party loans and purchase loans in the secondary market, providing money to lenders and financial institutions.
Following the Champlain Towers South condominium collapse in Surfside, Fla., the GSEs set out to make changes to their guidance that mortgage lenders must follow if they want Fannie Mae or Freddie Mac to guarantee or purchase their mortgages. According to FHFA, Fannie Mae and Freddie Mac own 62% of conforming loans. Lenders rely on Fannie Mae and Freddie Mac to purchase or guarantee their mortgages because it gives more liquidity for lenders, which then allows them to underwrite or fund more mortgages.
Lenders need to comply with the new Fannie Mae and Freddie Mac requirements to maintain
underwriting or funding the volume of mortgages.
The new requirements, intended to mitigate the risk of losses for Fannie Mae and Freddie Mac, create a database of condominium and housing cooperative projects that are ineligible for guarantee or purchase by Fannie Mae or Freddie Mac. Lenders will and have declined lending in condominium and cooperative projects with significant deferred maintenance or unsafe conditions, special assessments, insufficient reserve funding, or no reserve study.
WHAT ARE LENDERS LOOKING FOR FROM CONDOS AND COOPS?
There is considerable overlap in the Fannie Mae and Freddie Mac requirements, and they have released a joint uniform lender questionnaire. Our summary below combines both Fannie Mae and Freddie Mac’s requirements.
Significant Deferred Maintenance and Unsafe Conditions
Projects with significant deferred maintenance or unsafe conditions are not eligible until repairs are completed.
Special Assessments
Lenders must evaluate special assessments within the project to understand the reason for the special assessment, the total amount of the assessments (including repayment terms) and evaluate whether there is a negative impact to association funds to make critical repairs. The assessment must be considered in the borrower’s debt ratios.
Reserve Requirements
All condominiums and housing cooperatives must have 10% of the association’s assessment income
dedicated to reserves. This 10% must be clearly identifiable in the association’s budget…
