MReport November 2021

TheMReport — News and strategies for the evolving mortgage marketplace.

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60 | TH E M R EP O RT O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST GOVERNMENT New Rules to Protect Consumers From Unsafe Condos Fannie Mae has instituted new rules about deferred maintenance before they will take on the loan. I n 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 con- cerns about aging infrastructure, the GSE is taking new mea- sures 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 require- ments for review of condo and co-op financial reserves. • Reiterated to lenders and ap- praisers that appraisals must document any special assess- ments 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 build- ings, which are especially popular in urban areas and near beaches, may offer great views and rooftop decks – and they come with el- evators and underground parking garages, like Champlain Towers South, that require ongoing maintenance," Horne wrote in a blog post. "Garden-style develop- ments with three or fewer stories may have less obvious ongoing infrastructure needs, but founda- tions must be maintained to avoid water intrusion or structural col- lapse, 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 signifi- cant 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 spe- cial 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 re- search on the challenges of aging condo and co-op infrastructure, and says it is "committed to pro- viding sustainable homeownership opportunities for a range of hous- ing types and helping to protect borrowers from physically unsafe or financially unstable projects."

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