Rates hit their all-time high for the year today – a solid 3/4% higher than before the war. They have not been this high since exactly one year ago.
I. Keep Condo Loan Contingencies
We often have extremely strong borrowers making offers on condos – and their agents want to waive loan contingencies.
If those borrowers were offering on single-family residences, we’d encourage them to waive loan contingencies.
But for condos, we rarely do (with two exceptions) because so many HOAs no longer meet Fannie, Freddie, FHA, or Jumbo lender requirements.
This is not news to many readers, but I am bringing it up again for two reasons: (1) agents are still asking if they can waive loan contingencies; and (2) the condo situation is going to get worse in August.
II. Here Are the Two Exceptions When Borrowers Can Waive Loan Contingencies With Condo Offers:
1. We recently (within 90 days) closed a loan in the same complex, so we know the HOA is kosher.
or
2. The borrower has the cash to qualify for and the willingness to accept inferior non-QM financing, and we’re certain the HOA will qualify for that financing in the worst-case scenario.
III. This Is What Happens in August
1. Fannie and Freddie will require “full reviews” (budget, all HOA docs, HOA delinquencies, reserves, litigation, insurance deep dive, etc.) for every condo deal. Previously, they allowed “limited reviews” (requiring much less scrutiny and few documents) for strong borrowers.
These full reviews both take longer and are more likely to find an issue that threatens financing.
2. Fannie and Freddie are increasing their reserve requirements – to make sure HOAs can afford the necessary upkeep, repairs, and maintenance (many complexes have been exposed as woefully underfunded in recent years).
Couple these requirements with the issues that have already surfaced regarding inadequate insurance and reserves, and more condos than ever will need to seek alternative non-QM financing.
IV. Most Important Point of This Blog: We Need a “Condo Questionnaire” – Not Just Condo Documents.
This is a frequent source of confusion and frustration. Sellers or agents often provide lenders with a full set of HOA documents, thinking that is all we need.
But lenders also need a specific “Condo Questionnaire” filled out, specific to every lender or investor that buys loans.
The questionnaires are a series of questions (reserves, owner occ ratios, insurance info, ownership concentration, etc.) that we send to the HOA.
And yes, much of the info is in the condo docs themselves, but lenders require the most up-to-date info possible (plus info not in the docs) to be conveyed by the HOA directly.
This is what fosters additional frustration: HOAs charge $500 to $700 to fill out these questionnaires.
When agents and borrowers see a $600 charge, they will ask why we are charging $600 for HOA documents they already provided – and we then have to explain it is for the much more important “Questionnaire.”
And yes, charging $600 to fill out a questionnaire is robbery, but there is nothing lenders can do about it; they need that document.
