The Condo Paradox, Destruction Of A Market Place
March 16th, 2009 categories: Tips For Buyers, Tips for Sellers
Would you be outraged if you found out that the Federal Government was taking actions that are slowing the pace of the recovery in the housing market? Well it appears that is exactly what is going on.
While the Federal Government is pouring billions of tax payer dollars into the economy in an all effort to stabilize the housing and financial markets the recently nationalized Fannie Mae is tightening condominium lending standards. These new standards make it more difficult to obtain financing for those who want to buy a new condo.
I believe that most clear minded individuals would agree that given the fact that the Federal Government controls Fannie Mae that a coordinated effort could be made to relax those underwriting guidelines that will enable more well qualified buyers to obtain financing to buy a new condominium.
Overview of Fannie Mae Condo Guideline Changes:
- For new construction and newly converted condo developments, 70% of the units must be pre-sold (closed or under bonafide contract). This is an increase from 51%.
- No more than 15% of a condo project units can be more than 30 days past due on HOA fees.
- Fidelity insurance will be required for condos with 20 or more units, ensuring that homeowner associations funds are protected. Prior to these changes this threshold was only for new condos but is now being applied to existing/established condos as well.
- Borrowers/unit owners must now obtain a condo-owners insurance policy unless the master condo policy provides for interior unit coverage.
- No more than 10% of a project can be owned by a single entity.
- No more than 20% of a project can consist of non-residential space.
- The homeowners association must have 10% of it’s budgeted income designated for replacement and reserves and adequate funds budgeted for the insurance deductible.
The Icon and The Jade Residences in the Brickell area, Canyon Ranch on Miami Beach and The Artech in Aventura are just a few examples of the many new world class condominium buildings in South Florida. Many savvy buyers from around the world recognize that the units in these buildings represent incredible values at their current price points.
I think that it would benefit the housing market and the economy as a whole if the Federal Government were to put into place meaningful changes to the Fannie Mae condominium guidelines to make it easier for well qualified buyers to finance these units.
While most of the units in these luxury buildings would require jumbo mortgages wouldn’t it make sense for the Federal Government to require any lender that was the recipient of TARP funds to adhere to a relaxed set of condominum guidelines making purchase money mortgages more readily available to potential buyers?
The Federal Government needs to coordinate it’s efforts regarding new condominiums and available financing before their actions lead to the destruction of an otherwise viable market place.
