Prospective condominium buyers will face significantly tougher mortgage requirements beginning August 3, when Fannie Mae and Freddie Mac implement revised lending policies that eliminate streamlined reviews for most condo buildings. The government-sponsored enterprises announced the changes in March, requiring lenders to conduct comprehensive assessments of condominium associations' finances, reserve funding and building maintenance before approving mortgages they intend to sell on the secondary market. While lenders already review condo associations in many cases, the new policies mandate a far closer examination of association health for most transactions.
The changes are intended to better identify condo buildings with financial or structural problems and reduce the risk that owners face unexpected special assessments or higher association dues, according to a March 18 letter to lenders from Fannie Mae. However, industry observers anticipate substantial friction in the mortgage approval process. Max Slyusarchuk, chief executive of AD Mortgage in Fort Lauderdale, Florida, warned that the revised standards will fundamentally alter the condominium buying landscape.
"It will make the process take much longer and will result in a lot of disqualifying applications," Slyusarchuk said. His firm, a mortgage wholesaler, sent a letter dated July 16 to the Federal Housing Finance Agency urging the regulator to modify or postpone the changes. The agency, which oversees Fannie Mae and Freddie Mac, did not respond to requests for comment. Buyers "should expect it to be way more difficult to buy a condominium," Slyusarchuk added.
The tightened underwriting environment reflects the continued regulatory response to the June 24, 2021 partial collapse of the twelve-storey Champlain Towers South building in Surfside, Florida, which killed 98 people. The National Institute of Standards and Technology released a report on June 22 concluding that the forty-year-old building had design and construction flaws from the time it was built, as well as decades of deterioration that contributed to the collapse. Published reports in the aftermath showed the condo association had delayed major repair work as the cost and scope of the project were debated.
The disaster prompted Florida's state legislature to enact condo reforms, including special inspections for older buildings, as well as requirements to address identified structural problems and adequately fund reserves for future repairs. Nationally, Fannie Mae and Freddie Mac tightened condo underwriting in the months after the Surfside collapse by making projects with significant deferred maintenance, critical repairs or certain special assessments ineligible for mortgages they would purchase or guarantee. The changes, initially implemented as temporary measures, were largely made permanent in 2023.
The latest round of policy adjustments, unveiled in March, eliminates the limited or streamlined review that has been available for certain condo buildings. Beginning August 3, unless a project qualifies for a waiver — which can include some smaller condominium projects — many transactions will require a full review involving comprehensive assessment of the condo association's finances, reserves and insurance coverage. Some provisions in the new framework are intended to ease burdens on associations, such as allowing more flexibility in how they insure roofs to help reduce costs and expand access to coverage.
Condominiums represent a substantial segment of the United States housing stock. As of 2023, there were approximately 8.6 million condominium units in the country, according to the Census Bureau's American Housing Survey. The median price for a condo or co-op was $380,000 in June, up 1.6 per cent from a year earlier, according to the National Association of Realtors. That compares with a median price of $446,400 for a single-family home, making condos generally less expensive entry points into homeownership.
Fannie Mae and Freddie Mac purchase home loans from lenders and package them into mortgage-backed securities for investors. If lenders want to sell mortgages to the government-sponsored enterprises — and most do because it frees up capital to do more lending — the loans must meet certain underwriting standards, whether for a condo or other type of home. The August 3 changes will affect any lender seeking to offload condominium mortgages to the secondary market, effectively establishing new minimum standards across much of the industry.