Fannie Mae Condo Changes - Interest Rate/Hazard Insurance/REO/HOA Dues

By
Mortgage and Lending with Guaranteed Rate NMLS #151088

Fannie Mae is making a number of guidelines pertaining to condos.  Below is a summary of recent implementations:

Interest Rate Adjustment

Effective immediately, Fannie Mae has implemented a .75% pricing adjustment for all loans >75% LTV secured by a condominium.  This .75% adjustment can be paid in the form of discount points or by the borrower taking a higher interest rate to offset the cost.  Mortgages on condos with LTV's <75% will not be impacted.  This adjustment does not apply to PUD's, only to projects legally classified as being condominium ownership. 

Hazard Insurance Requirements

Fannie Mae now requires that lenders verify that hazard insurance for all condominium projects with attached units, including two- to four- unit projects, covers fixtures, equipment, and other personal property inside individual units if they will be financed by the mortgage.  The updated policy now requires that the borrower obtain a "walls-in" coverage policy (commonly known as HO-6 policy) unless the lender can document that the master policy provides the same interior unit coverage. The master policy must include replacement of improvements and betterment coverage to cover any improvements that the borrower may have made to the unit.

The HO-6 insurance policy must provide coverage in an amount that is no less than 20 percent of the condominium unit's appraised value. The standard requirement for a 5 percent deductible applies. 

Delinquent HOA Dues for Units in Attached Condominium Projects

Fannie Mae is updating its delinquent HOA dues policy for the review processes to require that no more than 15 percent of the total units in a project can be 30 days or more past due on the payment of their condominium/association fee payments. This new policy applies to the review of both new and established attached condominium projects. 

Clarification of Owner-Occupancy Ratio Requirements

Fannie Mae requires that established condominium projects consisting of attached units have an owner-occupancy ratio of at least 51 percent at the time the loan is originated (purchase or refinance) if the mortgage loan being delivered is secured by an investment property. Established projects where borrowers will occupy the unit or use the unit as a second home are not subject to any owner-occupancy ratios.

Due to current market conditions, many condominium projects are experiencing higher numbers of financial institution- owned REO units, which many lenders may be counting as non-owner-occupied under Fannie Mae's current requirements. 

Fannie Mae is clarifying its condominium project owner-occupancy ratio policy to include REO units that are for sale (not rented) as owner-occupied units in the owner-occupancy ratio. 

Call or e-mail for complete details.

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It is always advisable to consult with a knowledgeable lending professional when navigating today's turbulent mortgage and real estate marketplace.  I am committed, qualified and equipped to help you evaluate your options!

 

Also check out:

Conventional Financing Mortgage Program Overview/Updates

FHA Financing Mortgage Program Overview/Updates

USDA Financing Mortgage Program Updates  

 

Programs Include:

 

  • Conventional (Fannie Mae & Freddie Mac)

  • FHA, USDA, & VA

  • Jumbo to $3,000,000

  • Bank Statement Program for Self-Employed Borrowers

  • Foreign National Program

  • Investor Cash Flow

  • Non-Warrantable Condos

  • Georgia Power Leaseholds for Lake Burton, Rabun, & Seed

 

  • ************************************************************************************************************
  • Rodney Mason is a Licensed Branch Manager located in Atlanta, GA.   He can be reached at (404) 591-2453.
  • Providing financing for all cities across Georgia including: Acworth, Albany, Alpharetta, Athens, Atlanta, Augusta, Austell, Avondale Estates, Blairsville, Bloomingdale, Blue Ridge, Bogart, Brunswick, Buckhead, Buford, Canton, Carrollton, Cartersville, Chatsworth, Clayton, College Park, Columbus, Commerce, Conyers, Covington, Cumming, Dahlonega,  Dacula, Dalton, Dawsonville, Decatur, Doraville, Douglasville, Duluth, Dunwoody, East Point, Fayetteville, Flowery Branch, Gainesville, Greensboro, Hampton,  Hapeville, Hinesville, Hiram, Jackson, Jefferson, Jonesboro, Kennesaw, Lagrange, Lawrenceville, Lilburn, Lithia Springs, Macon, Madison, Metter, Morganton, Morrow, Newnan, Norcross, Oakwood, Peachtree City, Pooler, Richmond Hill, Riverdale, Rome, Roswell, Sandy Springs, Savannah, Scottdale, Statesboro, Stockbridge, Stone Mountain, St Marys, Sugar Hill, Suwanee, Thomasville, Thunderbolt, Tucker, Tybee Island, Valdosta, Waleska, Warner Robins, Waycross, Wilmington Island, Winder, Woodstock, and many more.

    Providing financing for all cities across Alabama including:
    Alabama Port, Anniston, Athens, Auburn, Bessemer, Birmingham, Boaz, Bridgeport, Cedar Bluff, Chickasaw, Clayton, Coden, Dauphin Island, Decatur, Dothan, Eufaula, Fairfield, Fairhope, Florence, Foley, Forestdale, Fort Morgan, Fort Payne,Gasden, Grand Bay, Gulf Shores, Heron Bay, Homewood, Hoover, Jasper, Josephine, Madison, Meadowbrook, Midfield, Mobile, Mon Louis, New Hope, Orange Beach, Oxford, Oyster Bay, Phenix City, Prichard, Rainbow City, Saraland, Satsuma, Scottsboro, Selma, Troy, Theodore, Tillmans Corner, Trussville, Tuscaloosa, Vestavia Hills, Warrior and many more.

  • Providing financing for all cities across Florida including: Altamonte Springs, Atlantic Beach, Boca Raton, Bradenton, Cape Coral, Clearwater, Coral Springs, Daytona Beach, Delray Beach, Destin, Fort Lauderdale, Fort Myers, Fort Walton Beach, Gainesville, Hollywood, Homestead, Jacksonville, Jupiter, Key Largo, Key West, Lake City, Largo, Marathon, Mexico Beach, Miami, Naples, New Smyra Beach, Ocala, Orlando, Palm Coast, Panama City Beach, Pensacola, Pompano Beach, Port St Joe, Sanibel Island, Sanford, Sarasota, St Augustine, St Petersburg, Tallahassee, Tampa, Vero Beach, West Palm Beach, & Winter Park, and many more.

 

  • Providing financing for all cities across South Carolina including: Aiken, Anderson, Beaufort, Bluffton, Charleston, Columbia, Conway, Edisto Island, Florence, Greenville, Hilton Head, Johns Island, Myrtle Beach, North Augusta, Orangeburg, Rock, Hill, Spartanburg, Sullivans Island, Summerville, and many more.  
  •   

    Providing financing for all cities across Tennessee including: Athens, Brentwood, Bristol, Chattanooga, Clarksville, Cleveland, Cookeville, Dyersburg, Franklin, Gatlinburg, Greeneville, Johnson City, Kingsport, Knoxville, Maryville, Memphis, Morristown, Murfreesboro, Nashville, Newport, Oak Ridge, Pigeon Forge, Sevierville, and many more

 

All mortgage lending guidelines are accurate at time of post, but are subject to change without notice.  Please call for the most current information.

    

           

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Show All Comments
Rainmaker
671,844
Jim & Maria Hart
Brand Name Real Estate - Charleston, SC
Charleston, SC Real Estate

Hey, Rodney. This is a lot of help. I have been asking all week for this information and here it is. I greatly appreciate you taking the time to post this. All my best, Jim

Jan 31, 2009 03:17 AM #1
Rainmaker
416,951
Rodney Mason
Guaranteed Rate - Atlanta, GA
Licensed in AL, FL, GA, SC, & TN

You are very welcome.  With the constant stream of changes, it's challenging to keep with up everything and know what the current policy actually is.

Feb 01, 2009 01:29 AM #2
Anonymous
Jim Bowers
  1. Would you post the link(s) to the source material for Summary. 
  2. What is your opinion as to how this affects old condo projects where individual unit owners have refinanced and then those loans have then been bundled and sold off in the secondary market?
  3. As I recall the bundling rules, it means that if one unit in a project falls under Fannie Mae then these rules would apply to the project as a whole. Is that correct?
  4. What is the impact on projects that have small percentage of owner occupied units, say 20%, and the majority of the remainder are transient rentals?
  5. Asuming the facts of number 4 above and then you add some timeshare units into the mix.
  6. What are the penalties for not following the new rules?
  7. Is Feddie going to implement this same rule change?
Feb 01, 2009 03:24 AM #3
Rainmaker
416,951
Rodney Mason
Guaranteed Rate - Atlanta, GA
Licensed in AL, FL, GA, SC, & TN

1.  The source is Lender Announcements and Lender Letters issued to mortgage lenders by Fannie Mae.

2.  I don't understand theexact question, but these changes have no impact on mortgages already issued.

3.  Only conventional mortgages originated going forward are impacted.  FHA/VA have their own rules for condo acceptance.

4.  "Fannie Mae requires that established condominium projects consisting of attached units have an owner-occupancy ratio of at least 51 percent at the time the loan is originated (purchase or refinance) if the mortgage loan being delivered is secured by an investment property."

5.   I don't understand the question, but I don't see how timeshares would be involved.

6.   If the rules are not followed, then conventional financing is not available.  It would have to be a cash sale.

7.  Fannie and Freddie guidelines typically mirror each other for the most part.  I have not seen Freddie's full announcement, except that they are also implementing the pricing adjustment

Feb 01, 2009 03:48 AM #4
Anonymous
Matt

What are Fannie's guidelines for condominiums that are 4 or less units? For instance we have a 2 unit condo project for sale. Are there different guidelines for this type of project regarding 51% occupancy or insurance requirements?

Feb 10, 2009 10:09 AM #5
Rainmaker
416,951
Rodney Mason
Guaranteed Rate - Atlanta, GA
Licensed in AL, FL, GA, SC, & TN

Established projects where borrowers will occupy the unit or use the unit as a second home are not subject to any owner-occupancy ratios.

Feb 10, 2009 01:19 PM #6
Anonymous
Ross

Rodney

 

Can you clarify and confirm if my understanding is true.  I am buying in a new construction building in New York.  I have been told by banks that since the development is only 40% sold, I can not get a mortgage.  There are no rented units, they are all for sale and held by the sponsor.  I am supposed to close in a few months, they may sell more but where does that leave me?  I was advised that it had to be 51% sold and that it is moving to 70% next month.  Please advise or help.

Feb 14, 2009 01:38 PM #7
Rainmaker
985,918
Will Nesbitt
Nesbitt Realty at Condo Alexandria - Alexandria, VA
Nesbitt Realty is a family-run brokerage.

Great information. I wish I could reblog it.

Feb 15, 2009 09:03 PM #8
Anonymous
Jackie O'Hara

Thanks so much for the clear and succinct summary.  Is it true that Fannie and Freddie will ALSO tack on an additional 1.75% if the purchaser is classified as "investor?"  If so, does that only apply to loans with more than 75% LTV...

Feb 28, 2009 05:15 AM #9
Anonymous
Anonymous

I mean "less than 75% LTV"

Feb 28, 2009 06:10 AM #10
Rainmaker
416,951
Rodney Mason
Guaranteed Rate - Atlanta, GA
Licensed in AL, FL, GA, SC, & TN

The Fannie/Freddie investment property adjustment is as follows:

75-80% LTV - 3.00% adjustment

<75% LTV - 1.750% adjustment

This cost can either be absorbed into a higher interest rate or paid upfront in the form of discount points.  The condo adjustment is separatefrom the investor one.  All investor loan will either have a higher interest rate or discount points involved.

Mar 05, 2009 06:18 AM #11
Rainmaker
416,951
Rodney Mason
Guaranteed Rate - Atlanta, GA
Licensed in AL, FL, GA, SC, & TN

New construction condos have different guidelines than that of existing projects.  Due to the increased risk of a new property, the presale and owner occupancy percentages must be much higher. 

"Why is Fannie Mae increasing the minimum presale requirement for a new project/phase from 51 percent to 70 percent for Lender Full Review?

Fannie Mae's analysis indicates that the best performance has been on condo loans with a 70 percent presale requirement. (We previously had a 70 percent requirement for Type B project review.) In light of current market conditions and the need to mitigate risk on condo loans, Fannie Mae is reinstating the policy requiring 70 percent presales."

"Will lenders still receive "Certified by Lender" in CPM if the project/phase has less than 70 percent presales?

CPM will continue to have a more flexible presale guideline. The exact presale requirement for each project will be determined through review of the project's overall characteristics."

If the property is strong enough, a lower than 70 percent presale may still be ok.  It will be on a project by project basis though.

Mar 05, 2009 06:34 AM #12
Rainmaker
416,951
Rodney Mason
Guaranteed Rate - Atlanta, GA
Licensed in AL, FL, GA, SC, & TN

"What are Fannie Mae's definitions of "established" and "new" projects?

An established project is one in which (a) at least 90 percent of the total units in the project have been conveyed to the unit purchasers; (b) the project is complete (including all units and common elements); (c) the project is not subject to additional phasing or annexation; and (d) control of the homeowners' association has been turned over to the unit owners.

A new project is one in which (a) fewer than 90 percent of the total units in the project have been conveyed to the unit purchasers; (b) the project is not fully completed (for example, there is proposed construction, new construction, or the proposed or incomplete conversion of an existing building to a condominium); (c) the project is subject to additional phasing or annexation; or (d) control of the HOA has not been turned over to the unit owners."

Mar 05, 2009 07:11 AM #13
Anonymous
Cheryl

I am looking at an HO-6 policy that we had to have a borrower obtain.  The property coverages are broken down into "dwelling", "personal property", and "loss of use".  Does the dwelling coverage alone have to be at least 20% of the units appraised value or a combination of all property coverages?

 

Thanks!

Mar 12, 2009 06:54 AM #14
Anonymous
Marybeth

Fannie Mae is updating its delinquent HOA dues policy for the review processes to require that no more than 15 percent of the total units in a project can be 30 days or more past due on the payment of their condominium/association fee payments. This new policy applies to the review of both new and established attached condominium projects.

 

Does this apply to refinances as well?

Jun 07, 2010 08:18 AM #15
Rainmaker
416,951
Rodney Mason
Guaranteed Rate - Atlanta, GA
Licensed in AL, FL, GA, SC, & TN

Marybeth....The only exemption to this policy is for someone purchasing a Fannie Mae REO and using the HomePath financing option.

Jun 07, 2010 08:32 AM #16
Anonymous
Mathias

I am trying to refi a condo from a condo conversion in 2007. 3 of the 8 units are owner occupied the others belong to 2 people that originally did the conversion and are now renting them out. Can I somehow qualify for a refi?

 

Thanks

Mathias

Sep 08, 2010 01:10 PM #17
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