Having a good job, steady income and good credit will go a long way in helping borrowers secure a home mortgage, but they may not be enough when it comes to buying or refinancing in certain condominium buildings. Stricter guidelines that govern which buildings are approved for conventional mortgages — rolled out by three government agencies in stages since December 2008 — are locking out thousands of buildings nationwide. States like Florida and Arizona are especially hard hit; mortgage brokers say that some buildings in the New York area have also been affected. The guidelines and approvals come from Fannie Mae, the buyer of home mortgages; Freddie Mac, its smaller competitor; and the Federal Housing Administration, which insures loans. The rules were meant to help strengthen their balance sheets as they faced a surge of loan defaults in the condo market.
“If a condo project is not approved, it makes it very difficult to get financing for a first-time purchase or refinancing,” said David Adamo, the chief executive of the Luxury Mortgage Corporation in Stamford, Conn.
The National Association of Realtors estimates that 23,000 condominium projects nationwide are on the verge of losing their F.H.A. approval by spring. Some 2,200 buildings with older approvals lost their status in December. Last month, though, the F.H.A. granted extensions.
Lists of approved buildings are available online at Fannie Mae and the F.H.A.Fannie Mae’s guidelines typically preclude it from buying a new-purchase condo loan from a lender if more than 15 percent of the owners in the condo development are 30 days or more late on monthly maintenance fees. (The provision doesn’t apply to an owner seeking to refinance a Fannie Mae loan.)
Other hurdles: Condo associations are required to set aside 10 percent of their budgets for maintenance and “reserves”; and new developments are ineligible for Fannie-backed financing unless 70 percent of their units have sold or are under contract (the threshold used to be 51 percent). Freddie Mac adopted similar guidelines last year.
There are exceptions. “We do entertain waivers on our condo criteria, depending on the nature and circumstance,” said Janis Smith, a Fannie Mae spokeswoman, “when the lender makes a rational, fact-based request for the exception.” Last year, Fannie approved 93 percent of the 1,700 condo buildings in New York that applied for waivers.
The F.H.A., meanwhile, requires that at least 50 percent of a building’s units belong to owners who occupy their units, and that no more than 10 percent be owned by a single investor. The agency requires that a homeowners’ association set aside 10 percent of its budget for maintenance and capital expenditures. If the budget does not meet those requirements, the lender can request a reserves study to gauge the building’s financial stability.
New buildings are ineligible for F.H.A. financing unless 30 percent of their units have sold.
“The biggest problem we’re running into now is that a lot of condos are not meeting the minimum reserve requirements,” said John Manning, a mortgage broker in Brooklyn.
In addition, he said, homeowners unable to sell their condos have been subletting them, particularly in Battery Park City, a move that could lower the owner-occupied ratio below the agency minimum. “We have a lot of buildings that are teetering on the brink” of eligibility, he said.
Steven Campbell, a loan officer at the Mortgage Assistance Company in Plainville, Conn., says that condo owners thinking of refinancing should ask their homeowners’ association for copies of the budget and its financial questionnaire, a detailed form consumers submit to lenders for a loan or refinancing.
If a building is not yet approved, owners can hire a real estate lawyer or broker to submit the required paperwork, said Graham Lefloch, a broker at WC Financial in Stamford, Conn.
By LYNNLEY BROWNING from the New York Times