
I've had a lot of buyers have asked me about the new Fannie Mae guidelines and how they can effect a potential sale. Smaller buildings in Hoboken and Jersey City are more susceptible to these regulations, especially the investor unit guidelines.
Fannie Mae, the government-sponsored organization that makes sufficient funds available to mortgage lenders by buying mortgages from primary lenders and either holding them in investment portfolios or reselling them as mortgage-backed securities, has implemented new guidelines, effective March 1.
To facilitate sales of condo units, associations and their boards and managers should be aware of the changes, which include clarification on matters such as owner-occupancy ratios and association insurance.
Fewer investor units
Prior to these new guidelines, at least 51 percent of the total units in new construction or newly converted attached condo projects were required to be under contract to individuals who use the home as their principal residence or second home. New guidelines have increased this pre-sale requirement to 70 percent of the total units in the project or a particular phase that has been submitted to the condo project, effectively decreasing the number of permissible investor units for a Fannie Mae-approved project.
Existing projects
Established condo projects must have an owner-occupancy ratio of at least 51 percent of the units if the loan is secured by an investment property. Existing projects where borrowers will either occupy the unit or use it as a second home are not subject to owner-occupancy ratios.
Assessments scrutinized
Condo associations and their boards also must be aware of guidelines concerning the level of assessment delinquencies. As revised, no more than 15 percent of the total number of units in a development can be more than 30 days past due in assessment payments. This standard applies to both new construction and established condominium projects. This policy presents a dilemma for developers who do not pay the full amount of assessments on unsold units.Fidelity insurance covers the association from loss of funds by those who handle association operating funds and reserves. Fannie Mae guidelines state that fidelity insurance is required for new condominium projects with 20 or more units. Illinois law is more stringent, requiring an association with six or more dwelling units to maintain fidelity insurance.
Insurance standards
Fannie Mae standards for hazard insurance presents an interesting policy change. Prior guidelines required that lenders verify that an association carries hazard insurance to cover fixtures, equipment and other personal property inside individual units. The new requirements state that an individual borrower must obtain “walls-in-coverage,” which is commonly known as an “HO-6” policy. The exception to this requirement arises when the lender confirms that the association’s policy provides the same interior-unit coverage.
Source: Mark Pearlstein/Chicago Tribune
2 comments:
Thanks for the info Kevin. I wish I would have had this information before I put an offer in on my last condo
Finally, I got what I was looking for. Don’t have enough words to thank you that you choose this particular topic to write about. Feeling really satisfied after reading
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