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34 | M R EP O RT FEATURE I n January of 2022, new Fannie Mae condo and co-op lending guidelines created broad changes in how condo and co-op loans must be under- written. Freddie Mac followed suit shortly thereafter in February. In just a few short months, these sweeping changes in how lenders now must evaluate condo and co-op properties prior to clos- ing loans on condo and co-op units have had massive impact on mortgage availability and board member liability. Lenders have known about the changes coming to condo and co-op lending as early as October 2021. However, it was impossible to understand how much of an impact these measures would have. Today, we have a much better idea of the new reality that is emerging in condo and co-op lending. In short, what was hard just got a bit harder. Why This Is Happening T he new GSE guidelines require a near-forensic examination of the structural stability, mechanical components, deferred maintenance on those components, and special assessments in every condo or co-op building where a mortgage is provided. This is, of course, in addition to the normal scrutiny that condo/co-op buildings must go through to be deemed "war- rantable" for lending. This increased scrutiny by the GSEs is a direct result of the tragic condominium col- lapse of the Champlain Towers in the Miami suburb of Surfside, Florida. As we now know, the board members of that building continued to kick the proverbial "Maintenance Can" down the road for more than 20 years. So how did this happen? R epair and maintenance work was deferred year after year by newly elected board member after board member because no one wanted to increase main- tenance costs for owners in the building. Shocking as it may seem to be, this is the same mindset among thousands of condo and co-op board members across the country. This is not a hatchet piece on condo and co-op boards. I have seen many thoughtful, caring, and responsible board members make very tough decisions that have financially impacted hundreds of homeowners. But no two buildings and no two condo/co-op boards are alike. Peppered into the responsible decision-makers on many condo and co-op boards are members who have been voted in just to keep maintenance costs low. There are other familiar chal- lenges that condo and co-op projects face that ultimately have an impact on lenders, especially considering the GSEs' new lend- ing guidelines. The Day of Reckoning T he problem with keeping maintenance costs low and not addressing mechanical and structural component repair is that repair costs often increase over time. As a result, condo and co-op boards that have not been diligent in completing routine maintenance and repairs tend to have larger repair costs that accumulate in the future. It is not uncommon, in fact, for a minor roof leak to turn into a major structural issue down the line. Over the last 30 years of my career, I have consulted with thousands of condo and co-op boards. During that time, I have heard countless problematic com- ments that are far from unique or unusual: • "We're not putting money into reserve because I won't be alive when the repairs finally get made." • "Many of our unit owners are selling their units over the next five years—we'll just let the new board handle this issue." • "If repairs need to be made in the future, then we'll just cre- ate a special assessment." • "We do not care if people can get mortgage financing in our building. If people cannot buy their unit in cash, they should The Dawn of a New Reality in Condo and Co-op Lending Sweeping changes by the GSEs as a result of the Champlain Towers tragedy have altered how lenders evaluate borrowers seeking condo and co-op properties. By Orest Tomaselli