White says first-time buyers will spend up to $2,000 upfront only to discover their condo is ineligible for conventional financing
Fannie Mae and Freddie Mac's updated condominium financing requirements take effect in August, and the National Association of Mortgage Brokers (NAMB) is pushing hard for a delay.
The changes eliminate streamlined limited reviews in favor of full project reviews, raise required reserve funding from 10% to 15%, and add new reserve study implementation expectations.
It’s not just NAMB that is coming forward to voice concerns with the new regulations. A coalition including NAMB, the Community Home Lenders of America (CHLA), and the Community Associations Institute (CAI) wrote to FHFA Director Bill Pulte on Wednesday to warn about the implications for affordability and access, noting that condominiums remain one of the most attainable paths to homeownership for first-time and moderate-income buyers.
Kimber White (pictured top), NAMB president, has been making the case for a delay directly on Capitol Hill, including a recent call with the Senate Banking and Finance Committee. He said the FHFA has given no indication it will change course.
"They are still pushing that. They're not going to change that, I think," White told Mortgage Professional America. "We've sent a call to action out to make them understand to at least delay the implementation. We understand that we want to make sure that the borrower's collateral is secure, that the agencies are secure, and that borrowers are buying something that's going to have sustainability and longevity in it."
Pushing borrowers into higher rates
Under the new requirements, any condominium project with insufficient reserves will no longer qualify for conventional financing through Fannie Mae or Freddie Mac, White said. Borrowers in those projects get pushed into alternative financing at materially higher rates.
"If it's short on reserves, it's not going to get approved," he said. "You're going to have to go to alternative financing, which is going to drive people into higher rates. And those properties aren't going to be able to be sold."
The state of Florida is a useful case study, he said. The governor extended the deadline for condo associations to reach the 10% reserve threshold until 2027, and roughly 30% of the condos in White's market still have not reached it.
"I'm going to tell you now, probably I do 60% of my business in condos, and 30% of those condos still don't have those reserves," he said.
FHFA's position is that the increase in the reserve from 10% to 15% amounts to approximately $35 per month in additional HOA dues. White said NAMB’s white papers put the real cost considerably higher.
"It's more than $35 a month, and it's going to be thousands of dollars worth of assessments," he said. "Especially to go from 10% to 15%, it's going to be thousands. It’s going to be assessments that people can't pay."
‘Is this what affordability is?’
White raised a separate concern in his Senate Banking meeting. Buyers and brokers currently have no reliable way to know whether a condo project is eligible before spending money on it.
In his market, a buyer who pays for an appraisal, a home inspection, and a condo questionnaire has already spent $1,500 to $2,000 before anyone checks eligibility.
"By the time they put a questionnaire out and paid for an appraisal and a home inspection, they put out close to $1,500 to $2,000 in my market, and it could be higher in other markets," White said. "To come to find out once the lender gets the file that the loan is no longer eligible."
The approved condo list is currently accessible only to lenders, not to brokers or consumers, White said.
"Those lists need to be available to the broker and the consumer community," he said. "If you're going to implement this full review, it is only right. You have to be able to educate and prepare people with the material so they're not spending money and they're barely affording to get into a house only to find out that that condo is not approved and you've got to start over again."
White has seen the scenario play out first-hand. A condo appeared on the approved list at contract, but a questionnaire returned three weeks later showed the association had dropped below reserve requirements. The borrower ended up going non-QM.
"A non-QM mortgage is going to cost them 0.5% to 0.75% more in interest rate," he said. "Is this what affordability is?"
NAMB asked for an 18-month delay, White said. However, he expects lenders to start implementing changes ahead of the official date. He is stressing to brokers who work with condo borrowers to make their voices heard, while also preparing for the worst.
"You need to be educated about it," White said. "It's here."
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