For instance, said Sutcliffe, the new Fannie guidance requires loan officers to make certain that at least 10 percent of a condominium project's operating budget is reserved for "capital expenditures and deferred maintenance." Sutcliffe, who has analyzed condo project budgets for two decades, says there are no wiggle-room provisions in the guidance for "compensating factors," such as when part of the line-item reserves are for important but nonphysical expenditures like insurance.
If the "reserves" item is below 10 percent, some loan officers might simply reject the whole building and refuse to take loan applications on individual condo units, according to Sutcliffe.
Fannie Mae spokeswoman Marilyn Kornfeld said the new procedures are designed to "protect borrowers and manage increased credit risk in the market." Freddie Mac spokesman Brad German acknowledged that the changes would make condo-unit loans "more labor and paper intensive for the lender," but said weak sales, growing numbers of financially troubled projects and declining property values made them necessary.
Jeff Lipes, president of Connecticut-based Family Choice Mortgage Corp., said the Fannie Mae changes, combined with other retrenchments battering the condo market, mean that when potential applicants inquire about getting a loan on a condo unit, "we really can't give them a definite answer" because it takes research to determine whether their building qualifies.
"Even if you had an 800 FICO score and 50 percent equity," said Lipes, "you still might not be able to get a condo loan." It depends on whether the underlying project can pass the underwriting tests, is in a declining market, and has a lender "concentration" limit on it. Some lenders refuse to finance more than a set percentage of units in a single condo project to limit their risk.
Bruce A. Calabrese, president of Equitable Mortgage Corp. in Columbus, Ohio, said "Everybody is really backing off condos" because of all the restrictions and changes. He said he owns two condo units -- one in Florida, another in Myrtle Beach, S.C. -- and even though he is in the mortgage industry, "I don't think I could refinance either of them right now if I tried."
kenharney@earthlink.net
