In light of the Champlain Towers South condo collapse in Surfside, Florida, in June 2021, Fannie Mae is taking measures to show the public that condos and co-ops are still viable options for people in the market looking for something convenient and affordable.
In response to increased concerns about aging infrastructure, the GSE is taking new measures to address properties with significant deferred maintenance that impacts the safety, soundness, structural integrity or habitability of condos and co-ops.
As a result, properties with significant deferred maintenance, or ones that have received a repair directive from a local agency, will have to make good on repairs before the loan will be eligible for delivery to the GSE.
The updated requirements are:
- Enacting stricter eligibility review requirements for any condo or co-op that has issued a special assessment to address deferred maintenance items that directly impact the safety, soundness, structural integrity, or habitability of a unit.
- Strengthening lender requirements for review of condo and co-op financial reserves.
- Reiterated to lenders and appraisers that appraisals must document any special assessments or deferred maintenance on the unit or on the property as a whole during the mortgage application process.
According to Jodi Horne, Director, Single-Family Collateral Risk Management at Fannie Mae, condos and co-ops are still a popular option for housing, and in some cases, they may be the more affordable choice too.
“Condos and co-ops provide homeownership options in a variety of styles. High-rise buildings, which are especially popular in urban areas and near beaches, may offer great views and rooftop decks – and they come with elevators and underground parking garages, like Champlain Towers South, that require ongoing maintenance,” Horne wrote in a blog post. “Garden-style developments with three or fewer stories may have less obvious ongoing infrastructure needs, but foundations must be maintained to avoid water intrusion or structural collapse, roofs must be maintained so they don’t leak or cave in, and balconies must be repaired or replaced periodically to maintain structural integrity and remain safe.”
“Adequate financial reserves are critical to funding the significant maintenance that supports ongoing viability of condo and co-op projects,” Horne continued. “To maintain homeownership sustainability, Fannie Mae has long required scrutiny of project reserves on loans delivered to us, as well as disclosure of any special assessments and review of a number of other important project characteristics that would impact mortgage borrowers. Our latest guidelines reinforce our project reserve requirements and focus on their importance.”
The new requirements are temporary, but are in place until further notice. The GSE is also conducting accompanying research on the challenges of aging condo and co-op infrastructure, and says it is “committed to providing sustainable homeownership opportunities for a range of housing types and helping to protect borrowers from physically unsafe or financially unstable projects.”