That's not good. What will happen to my little townhouse? I suppose as long as I'm not in a severe declining market I'm okay....I'm okay anyway...I'm not planning on moving :)

Sally, I worry when these kinds of changes come not during market times when making good underwriting decisions is already important but then making these more difficult changes in a depressed market or singling out the declining markets to make it even more difficult is way to much of a correction for the sub prime market mess in the current market. Is this new expression really needed and will it accomplish more than create new hardships? This is like kicking a guy when he is down.  

That's what it is William...kicking them when they're down! This will really impact condo sales.

In my opinion it has nothing to do with the consumer and everything to do wih Lenders and a "sure thing"

Disgusting (and scary)

William - not good news, and I agree completely with Joan. Why make things even worse? Seems they are just contributing further to the problems we already have. Don't get me started on the banks who will not respond to offers on short sales.

Jeff 

having just listed a condo today - this is very valuable info for me - thank you for sharing

Joan, When I came to be enlightened on this subject, I was really taken back. It is hard enough to get through this Marvelous ( pun intended) market of uncertainty. Adding new problems where there are no solutions now, is going to be yet another drag. It is sort of like a cancer patient deciding to begin smoking, figuring what harm could it do now. It a sign of possibly desperate times ahead of us and how will we ( the first contact with the consumer) be breaking this new bit of news?

Hi William,

Very interesting info on this topic.

One of the problems that may occur is that the "condo certs" aren't usually done in advance, sometimes it seems like we're waiting for those things down to the 11th hour. And you're right about the staff time, yet it seems logicial that ordered earlier. Also, I thought I read somewhere that the requirement for funding hoa reserves (at least in CA) was also changing.

Condos faced this kind of negativity in years past... I didn't think it would happen again... Silly me!

Hi Jeff, I am right along with you on this. With Condos being such a big part of many market areas, I can't wait to see what happens next, Not, Always appreciate your insight and contribution to any worthwhile discussion.

Oh boy!  In my area condos are NOT declining -if anything they are going up.  But this is very important for me to know should this reverse.

Hi Thesa, Check with your lenders and see if it will have adverse effects on your market.

Hi Lynda, I do believe what you are referring to is the allocation requirements for the reserves. I think that the associations were trying to hold down fees as much as they could and in some associations the reserves fell below the required threshold.

In this instance the research has to be gauranteed by the lender. That takes a significant step away from the association that provides the recap of information and certifies it as accurate. How can lenders make that gaurantee. The management companies have a protected convenant of a fiduciary of not premitting that information that makes up those reports available to the public. This will not be an easy change and there will be territorial battles at the very least. Spell d-e-l-a-y. Spell F-r-u-s-t-r-a-t-i-o-n.

Hi Margaret, we are all reminded here on AR, in our offices and at home that many of the things that we have taken for granted for all these years are changing before our very eyes. We will need to adapt to the parts where we can't influence change. But I think we all underestimate that our local , state and national associations # 1 charge under the REALTOR oath was to protect property rights. I know for a fact that the president of NAR has been dealing with this and he will exert a lot of influence both on Congress, our members and the public communities. When and if this becomes a  *peril* and causes any major shifts in housing, there will changes forced again as these things will likely find there way through a sympathetic congress.

Hi Ruthmarie, you are not in a declining market area. That should offer some threshold of protection for your condo owners.  Appreciate you dropping by and sharing your insight here.

This is the pendulum swing in response to uncertainty. Banks, insurance, government react to the situation and overcompensate. Before they were too loose and now they will be too restrictive.  Tomorrow, they will forget and be too loose again.  The key is to think in the long-term.  Unfortunately, the people who have condos now have a problem.  Hopefully, one of these entities will take a deep breath and find a compromise that solves the problem rather than exacerbate it.

Reminds me of the exodus of FL insurance companies subsequent to 3 too many hurricanes - - to some degree.

In Detroit they will not  do a cash out refinance or refinance a second mortgage and have PMI.  Same reasoning Metro Detroit is a declining market

Hi William, we have already seen this year, with the new FHA guidelines and there have been some questions posted on Trulia Voices from consumers.  I think this is terrible for condo owners, our condos are most glutted in Ann Arbor.

William,

Is this the same thing we already have where a condo might not qualify a buyer under certain loan specifications? Meaning they do not allow for example an FHA loan for a specific complex or they do not allow them?

Wow. Now I think I understand why my co-op purchaser only had one bank willing to finance her buy (Wells Fargo). My mortgage broker buddy had to work really hard to get her a great rate and we jumped through a lot of hoops getting the paperwork together. In the end it was exhausting and she backed out of the deal four days before contract signing. The sellers were devastated. I was really disappointed as well, it was and still is a beautiful garden apartment with a private yard the owners cultivated with a grape vine and flowering trees.  You don't see too much of that in Queens.  They really took good care of the place and outdoor space.  The hubby has an excellent green thumb.

I have three new builders condos under contract in a "declining market" area in Northern Virginia.  Of course they are waterfront condos lumped together with every other property in the area.   So far the banks haven't not raised an issue but we will see what happens.

W-O-W this is scary for our market.  Our condo/townhome market is in the middle of a correction right now (it has been following the SFR market!)  A ton of our newer condos are also affected by construction defect litigation so that will be a double whammy for those subdivisions!

William,
Not what I wanted to hear.  A builder I represent is gearing up for a new condo project.  It seems to me it is all about protecting the lender and throwing the consumer to the wolves.

It was entirely predictable and expected. 

See:  http://activerain.com/blogsview/322241/LATE-PAYMENTS-ON-MORTGAGE

Good reminder William.  When agents list condos for sale, they can expect the MI costs to make it harder for their buyers to qualify.  It's just one item to cost out in the PITI, but added to the other small items, they add up to harder to qualify buyers and harder to sell homes. 

FHA looks better and better every day. 

Mmm, overall, this is just part of making it harder and harder to get a loan - this market correction is like losing 300 pounds...it's got to be done, but oooh it's painful and everything hurts...plus the results phase is so far in the distance it seems unattainable.

William,

It appears to me that the condo market is a long way from recovery! 

very good information. I will follow this and see how is plays out. Thank you.

William, thank you for a reminder and valuable information. Here in Greater Cleveland, it looks like our condo owners are stuck with their units forever. It's already a lot of foreclosures in condo market. Will be even worse. Many Associations and management companies contributed by not allowing rent. What should the condo owners do if they've already moved out of their place and keep paying  taxes, mortgage, maintenance fee, etc. without any hope of selling? I've just sold one condo for $60K less than owner paid to the builder 8 years ago. I feel terrible. My seller is happy, though as it was the first and the only sale in the whole development for last 30 months!

I don't think lender will be happy to do all this investigation and be responsible for this. Sure many of them will not just do a condo financing. Condo ownership becomes a very exotic experience in America.

BTW.  There is another down side to this phenomonon.  As more sellers find difficulty in finding buyers, they will resort to renting their property.  As the percentage of rental units in a development increases, FHA and VA approvel for the project will be withdrawn.  Prices will continue to slide.

Did I mention that we're doomed?

And the hits just keep on comin' . It will be interesting to see how this plays out with the Lenders and whether they're willing and able to take on this much responsibility.

Who determines whether a market is a declining market??  With regard to the lender warranty -- is there an objective standard regarding budget/reserves etc??? or is it subjective?  Do you think there will be challenges to this type of "regulation" and its impact on the ability of owners to sell their property?

Thanks for this post. It was very helpful!

William--I heard something of this on the news this past week. It is scary for anyone in a condo or association as I think it will affect more than one area and state. Good question...don't know if anyone will like the answers that are likely to be coming.

I know the lenders think this is a "good thing" to help stem their losses but it is just causing more problems and tribulations to an already bad situation.  It is very sad to hear this news.

William.. This is actually good news.  It is back to basics.  People who can't afford to purchase a home, will not be able to... nor should they.  Isn't this what brought about the problem/situtation we are in now anyway. 

William.. This is actually good news.  It is back to basics.  People who can't afford to purchase a home, will not be able to... nor should they.  Isn't this what brought about the problem/situtation we are in now anyway. 

Sorry... I wasn't signed in above when I wrote the reply to your blog.

As an appraiser, I just got a call from a lender today needing the copies of the budget, etc. for a unit I just finished appraising in a declining market - I assume this is why. Georgia does not have a good system for accessing the documentation now being required, it will be interesting to see how the management groups and HOAs respond to this.

Interesting news, William.  Money continues to get harder and harder to come by, regardless of the qualifications of the applicant in many instances.  I can't really fault the banks for running scared right now, but it certainly doesn't help the current state of the market.  It'll be interesting to see how this plays out.  Great information as always, William. 

Here in Honolulu we have always been under the gun to provide documentation to the lenders from the condo association/managing agent. There has never been an issue about revealing the information to the public (mentioned in one of the responses). The problem is, just how are the lenders supposed to "verify" the information in the document package? Will they have to coordinate with the manging agency?

What I wonder is, will this be another excuse for the managing agents to raise their fees for the documents? Recently, many Association Management companies have begun to price the document package at exorbitant rates, closing in on $600.00. Some are even not willing to provide them in printed format, as they are outsourcing the documents to thrid party on-line affilliates. Some will print them, adding a fee of about $70.00 for that, plus $20.00 to deliver them. If you decide to just have the docs emailed to you and print them yourself, they add a $15.00 "Convenience Fee". Several associations also trigger a "CCI", which I had never heard of, for an additional $115.00. The CCI, or Covenants Compliance Inspection, is triggered when you order the condo docs. And of course, the inspection causes further delays, misinformation, etc. Where will it end?

William - it's a serious concern. I was aware of the recent burden added to the lenders to determine the adequacy of all the items above, and all of our county is in a "declining market". The news about AIG is new and I have a call in to a local lender to see how significant AIG is in this area. Just this morning I spoke to our managing broker about providing a disclosure (CYA) to give our condo buyers, whether they're looking for a mortgage or paying cash.

William - Oh, the changes keep on coming.  Knee jerk reactions are running like water over a fall.  It is vital we keep as up to date as we can and share with eachother the goings on of our Industry to better serve our clients.  Thanks for sharing this my friend.

William, I am an Insurance Agent. There might be a few possible remedies for the owners. One, is loss Assessment Coverage. If a sudden occurance causing the Association to bill all owners to replace plumbing or roofing for example. Loss Assessment coverage will pay at offered increments from 10,000 to 50,000 depending on the Ins. Company.  The coverage is extremely cheap for Landlord, Townhome or Condo owners. There is also Insurance available for Loss of Value coverage protecting the owner and lender.

I encourage owners to get Earthquake and Flood Insurance and let them know this is also available coverage for Tenants to add to their Renter policy. Many HOA's have discontinued Flood and Earthquake, it's valuable for an owner or piotential owner to know what is in an HOA's reserves before purchasing and insuring their property.

When I write any policy, I remind owners that the age of the building and Systems, not the Paint and pretty flowers planted are the actual risks when purchasing their new Condo or Townhome. Depending on the age of the building, Backup sewer and drain is a very needed emergency coverage if the Street Sewer system causes a disasterous back-up. The sewers are only covered  by the City to the curb. This can even occur when brand new plumbing is attached to an older sewer supply. I have seen this happen and it's not pretty.

Often a condo or townhome is purchased as a retirement home. Seniors need to be made aware of all potential hazards, including inadequet Liability Insurance. It doesn't go with the size or amt. of the home. It needs to be enough to keep them from having to risk losing their prioperty or go back to work to pay off judgements and debt.

I have a property I insured in Down Town San Diego in the Gaslight District in the Samuel Lofts. All of the systems have been replaced in 2005. Taking an Old building and renewing it's Luster in such a grand style is an awesome thing. There are many many condos that have emerged in the San Diego Market, are the lenders shying away from Condos?

 I know with the Insurance Companies, General Contractors are not covered by their General Liability Insurance for Condos. The Condo Risk is extremely high and there is Insurance available for General Contractors at an extremely high premium to work on Condos.

I have advice for both sides. For the Contractor, build the proper Insurance into their bid and for the Lender (I've seen some white faces here) Make sure the Contractors show proof of Coveraqe for Condo work. The GL excludes Condos and if there is a problem with a defect down the road, For the Lender, Insurance Company  and the Owners, this can be futile and costly. Providing a Dec page only to the Developer and Lender does not show full disclosure of the Contractors Policy. Contractors need to show proof with the entire policy to the Lender.The loss from Contractors not producing and buying the correct coverage for the risk they are building is a direct cause for AIG and other companies no longer insuring the Condos. AIG is one of few A+ Companies that insure Class B Licenses. The Contractor is disclosed that they are excluded from working on Condos right in the policy. The reason is the risk of not one owner, but many, sometimes 100's sueing an Insurance Company for The Contractor. For every person who frauds the Insurance Company, others pay dearly for it. If all of the risks were properly covered, the loss wouldn't impact the Insurance Company to resolve the issue by no longer insuring the risk.

Many Lenders have requirements for minimun Insurance Coverage and Maximum deductibles allowed on their Loans.  Requiring additional coverages that I listed above has very little monetery impact and further protects the Owners and the Lender in the event of a loss. With any new change, there might be room for exceptions. FYI and thank you very much for bringing this to everyone's attention.

Terri 

This will make it even more difficult for condo owners who were hit at the start of the decline. This sounds like an opportunity for a mortgage broker to focus on creating solutions for a troubled niche market.

One issue that we have been watching for our buyers is the number of foreclosures or delinquencies that have been happening in a complex. When a unit is delinquent the HOA fee is normally also missed. The association's financials can be badly hit when a number of units go into foreclosure. While the HOA fees are covered after a foreclosure happens, the bank does not cover the missed HOA payments.

Geoff, it sounds simple doesn't it? My Husband is a Broker and on a few HOA Boards for his client owning over half of the units. The other, many elderly owners are facing extremely difficult times, with mortgages paid and no money for required City Repairs on the buildings. The Mortgage Brokers he has asked regarding this said it is too difficult and time consumng to work on these with other more lucritive projects on their desks.

Hi William - I'm not sure I want to say thanks for making us aware of this..... but I will.  I had not heard this, and I'm not sure how big a role AIG plays here in my market. 

I sell a lot of condos, and this kind of news makes me sick to my stomach.  As someone said above me, '..and the hits just keep on coming.'......

Ann

Thanks for the info and post.  This is a changing and frustating market but it offers us all a big opportunity. 

Wow, that's not good at all. I don't get it. They are making things even harder. Why?

William: This is something else... What are they going to come up with next

William......thanks for the post.  I heard a rumbling ab out this earlier in the week.

They will change their minds sooner than later after the damage has been done. They know nothing about local markets and the forces at work. They should have thought about this issue 4-5 years ago and not now. Much like Ethanol and the consquences that no one thought about.  

Everything in my area has been labeled a declining market.......this is good info to know, although I wished it wasn't true.

Hi Everyone, I have been home today with one of the worst flu/colds I have had in a very long time. I will get to commenting tomorrow. The day has been mostly devoted to sleep. It seems to have a worked as I am feeling 25% better. Maybe by morning more improvement. I had the flu all of last week but worked through it and right after I posted this last post, it hit like a ton of bricks again.

Anyway , thank you all for the great comments and I will try my best to get all of you responses tomorrow . Thank you again.

Sincerely,
William

The hits just keep on coming. Its getting to be a level on it now I thought. Declining markets are the main problem for MI. Thank goodness Im not in one!

Peter- I think your thoughts make perfect sense. Thanks for sharing your insights hereHi Susie- An interesting parallel

Russ- Good information, Russ. I am sure that must be true, other places as well.

Dear Missy- I hadn't looked on Trulia Voices, but I will. If this becomes more noticeable in an election year, I wonder how they intend to "Un-Ring" the bell.

Hi Neal- I would say it is similar, but taken with what you mentioned about FHA, add in these changes on conforming loans, and then tell me if this is going to affect resale values? That in turn may affect the ability to convey ( sell) to new buyers. When someone wants to purchase a condo-what do we say in the way of disclosure about what we see happening?

Hello Cindy- All the best! I am sure this will only affect areas of the market currently designated as" declining market" areas.

Hi Renee- Double whammy is right. I wonder what the owners think about builders and realtors about now. At least it defect litigation will settle out.

Good Morning Cynthia- It must appear that way. I am sure that wasn't the intent, right? Right? Right?

Hi Lenn- I think FHA might well become the standard for most condominiums. What rules will have to come in to play to keep the owner occupancy standards as being eligible may need to be seriously revised. Do you think 50 % is reasonable?

Hello Dawn- Great analogy. Well said.

Hi Mike- I worry most about the longer-term and if buyers will ultimately realize that the factors may be working against him either to buy condos now, or to sell them later.

Richard- You are welcome. Stay tuned, I am sure this will not be the last word on the subject.

Hello Svetlana- I don't know about forever, but for the shorter term, things don't look too accommodating. Exotic experience is an interesting way to put it.lol

Hi Lenn - Maybe the issue of owner occupancy ratio needs to be re-thought out. Perhaps NAR needs to tackle this. They can be pretty persuasive.

Colleen- That will be interesting, especially how they go about the "guarantee" part.

Hi Joan- that's a good question? I believe the standard is 10% of the budget. At this time it is not a regulation, is a guideline? I suppose it becomes a regulation once it is acted upon.

Rob- You are welcome. Thanks for dropping by.

Hello Teri- I suspect, that is going to be an issue everywhere that there is a "declining market" area. I do think there are going to be some very disappointed condo homeowners out there.

Rhonda- I don't think many lenders see this as "good news" however. More work, less pay and more liability. That is not a prescription for " good news".

Hi Valerie- Good News and Back to Basics. Tell that to the many condo owners ( past clients ) you sold to over the years and see if they feel that way. It could be a better standard in the longer term, but there are certainly going to be a lot of home current condo homeowners that might not share in the "glee".

Michelle- Very interesting. As an appraiser, have you ever been asked to secure a budget before? The lender at least would have a vested interest in procuring it, but an appraiser? This gets even more interesting. Thank you so much for sharing this.

Hi Paul -I really don't see this as "lenders running scared". The guidelines put an even greater responsibility on them. The lenders don't set up the guidelines, at the least as far as I have ever understood. We tend to lump everyone together, and clearly here at least, differentiations need to be made. It is always great to have your insight.

Hello Michael- Increasing management fees? I would not guess that these new guidelines would cause that. You do bring some great new information forward about management company fees for document's and transfers however. Perhaps the CCI, Covenants Compliance Inspection will be a new lender fee instead of a management transfer fee?

Hi Sharon- The disclosure to the buyers is a probable necessity. I wonder though, who is going to tell the current homeowners? This tougher news that selling their condos may just be getting a bit more difficult.

Hey Jason- Knee-Jerk is " today". Everything seems to be that way. Even those that would wish to protect the consumer, but lenders, the REALTORS are not able to justly weigh the facts and come to a clear conclusion.

Terri- Thank you for this great information. This certainly took you some time to compose and would make a great post all in and of itself. Thank you again. Very informative and I will spend an equal measure of time to learn the components of your insight is presented.

Geoff- Great information. Thanks for the reminder about these missed HOA payments. They also seem to be having an impact on some associations and why this issue was included in what the lenders needed to discover and certify.

Hello Ann- We will get through this and it seems to be an overreaction by Fannie and Freddie and others. It will in time, stabilize I am sure. I just have to believe this. In the interim, we can only do our best. We can greatly more empower our consumers by being current with new information.

Greg- Everything in life, good or bad, is an opportunity for someone. My concern is not so much focused on future buyers, but on current owners. If the effect of this causes them more financial loss, that is wrong. ( Even if someone else can seize it as an opportunity ).

More regulation and paperwork is never a good thing. I think this could make small loan companies flee the marketplace. Less lending options usually mean higher costs for the consumer.

Christy- it's perhaps an overreaction to the market in hopes of stemming future losses.

Roland- good question. What we could all guess is that there will be more !

Pam- RUMBLING! Now that is the word I should have used in the post! Thank you for dropping by and sharing a great word.

Hello Eric- you make another great analogy. Stay tuned, it will get interesting when the real impact of this hits, and we will see if it changes for the better?

Hello Kathy- I wish it weren't either. Maybe it will not be as onerous as it sounds? Then again..............

Hi Laura- I empathize with the insurers as well. If they don't make a profit they can't pay off the clients. Catch 22

Hello Jason and Deanna- Thanks for dropping by. I suspect you are very correct. And your final analysis, is also the usual result. Pay more- get less!

William,

 Travelers, Allied and Farmers does cover Condominium Insurance for Owners. AIG is very expensive, perhaps they are just getting out of that market.

Thanks for the information on these insurers, Terri. I don't think AIG is getting out of the market but they are making it clear that they do not want to underwrite insurance for lenders loans on condominiums in a designated "declining market" areas.