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Fannie Mae Calls for Full Condo Project Reviews (Unless You're Rich)

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Mortgage and Lending with iLoan - NMLS ID#1947845 NMLS 79048

Many would say that perhaps Fannie Mae should have become tighter on their guidelines for condos back in 2008 and now that they’re seeing recovery, start to loosen up (kind of like the private mortgage insurance companies did).  The opposite is happening as clearly Fannie Mae wants to limit their exposure to condos in their portfolio.  Periodically, changes are made to Fannie’s underwriting guidelines and their automated underwriting software.  Some are small and some are large and impactful.  Condo buyers beware as they snuck this one in (effective October 20th):

“A limited project review will no longer be permitted on principal residences in condominium projects when the LTV/CLTV/HCLTV is greater than 80%. DU will require a full project review on principal residences in condominium projects when the LTV/CLTV/HCLTV is greater than 80%.”

It seems pretty innocuous but this will have meaningful consequences on a lot of transactions.  For instance as of right now, there is only one publically Fannie Mae approved condo project in the state of MN and last year 23.9 percentof the Twin Cities transactions were condo/townhouse.  How’s that for a lot?

Going forward, regardless of whether or not a condo project is established, these loans will no longer be eligible for limited reviews (sometimes referred to as Spot Approvals) and must go through full review.  Secondary market mortgage lenders are implementing this change now so be ready for its consequences. A typical checklist for a Fannie Mae full review for condo projects would be as follows:

  • Appraisal Report
  • Conventional Condominium/PUD Warranty
  • Conventional Condominium HOA Questionnaire – here’s a sample
  • Copy of the Declaration Page of the Master Insurance Policy and evidence of Fidelity Insurance, if applicable
  • Current Operating Budget (typically not required for 2-to 4-unit projects)
  • Engineer's Report, description of renovations and rehabilitation (if applicable)
  • Management Contract
  • Agreement of Sale

For examples of ineligible project characteristics, click here, and for a copy of the Fannie Mae announcement regarding condos needing full review where the down payment is less than 20 percent, click here.  For a full list of approval options, click here.  If you think that having the project approved FHA will make this easier; it won’t.  If you think one lender’s project approval will be shared for others to use in the same way as FHA DELRAP condo approval; don’t count on it (it’s optional so don’t look to lenders to voluntarily expose themselves to risk).

This does not mean that there will be an onslaught of loan declines.  More than likely it will only create more work for association managers, Realtors, loan officers, processors and underwriters.  Worst of all, it will add extra steps and between 2 and 7 days, depending on the competence of the lender and association management, to an already long and overly tedious process.

Posted by

Charles Dailey - Branch Manager, Loan Officer, Certified Military Housing Specialist - iLoan - NMLS ID# 79048 -  612.234.7283 - charles@charlesdailey.com


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Comments (4)

MichelleCherie Carr Crowe .Just Call. 408-252-8900
Get Results Team...Just Call (408) 252-8900! . DRE #00901962 . Licensed to Sell since 1985 . Altas Realty - San Jose, CA
Family Helping Families Buy & Sell Homes 40+ Years

I know sometimes it just makes you want to scream, doesn't it?

Sep 19, 2012 05:22 PM
Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

This is for only loans above 80% LTV is it not?

Sep 19, 2012 09:32 PM
Robert Vegas Bob Swetz
Las Vegas, NV

Hello Charles ... Some interesting information and I wish these guidelines would loosen up and help the RE Market swing back faster ...

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Sep 20, 2012 02:01 AM
Janna Scharf
Keller Williams Realty Coeur d'Alene - Coeur d'Alene, ID
Coeur d'Alene Idaho Real Estate Expert

Thanks for educating me on this, it is good info to have although I rarely have an opportunity to work with buyers and cellers of condos. 

Nov 11, 2012 12:34 AM