Is That Condo You’re Eyeing (or Selling) on a Lending Naughty List?

by Corcoran McEnearney

Stricter lending guidelines for condominium sales mean some properties may not be eligible for certain financing.

Underwriting a residential mortgage loan involves a detailed review of the prospective borrower’s financial picture. It also involves a review of the property to be pledged as collateral for the loan. In the case of loans for condominiums, that review extends beyond the information included in a property’s appraisal report.

Most lenders choose to make sure the entire condominium project is approved by the U.S. Department of Housing and Urban Development (HUD) for FHA loans and the Department of Veteran Affairs for VA loans. In the case of conventional loans, both Fannie Mae and Freddie Mac loans require completed condo questionnaires and are obliged to check the Fannie Mae Condo Project Manager (CPM) system to determine whether a loan in a condo project is eligible for sale to Fannie or Freddie. Depending on the responses provided in the condo questionnaire, the lender may then require additional documentation from the condominium association.

The collapse of the Champlain Towers Condo building in Surfside Florida in 2021 has prompted many condo projects to undertake engineering studies of their structures and the lending industry to ascertain whether a condo project presents collateral risk. This increased scrutiny has led to a considerable number of condo projects being listed as “unavailable” within the CPM system.

My recent review of the “unavailable” condo project list for the District of Columbia revealed 30% of projects were on the list because critical repairs are needed and/or the project has significant deferred maintenance. As more condo projects undertake engineering reviews of their structures and facilities, it is likely more projects will be listed as “unavailable” and therefore ineligible for conventional financing until those identified deficiencies are corrected.

The inability to obtain financing for a unit in a condo project is problematic for both purchasers and sellers. Condominium Associations and management companies should be proactive in understanding the requirements of the mortgage industry in order to avoid being deemed ineligible. When a project does obtain the status of “unavailable,” those condominium associations should be equally proactive in making corrections and communicating with Fannie Mae in order to be removed from the unavailable list as quickly as possible.

Please reach out to me or my colleagues at Atlantic Coast Mortgage for more information about condominium loans and how to find the right lending program for your needs.

Brian Bonnet - Atlantic Coast Mortgage

Brian Bonnet

SVP, Sr. Loan Officer, NMLS: 224811

Atlantic Coast Mortgage, NMLS: 643114

O: (703) 766-6702 | M: (703) 304-0188

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