I. “Trump Sets New World Record By Winning War With Iran 27 Times In One Year”
That was a Babylon Bee headline yesterday. We all laughed, but oil traders said…”hmmm, sounds right to me…” So, oil prices and rates plummeted.
II. 330% Increase in Condo Projects Losing Fannie Mae Eligibility!
Some 1,700 condo complexes are non-warrantable now, meaning they are no longer eligible for Fannie/Freddie financing.
Calling this a debacle is an understatement. That is because losing financing options wipes out entire contingents of buyers (especially low-down-payment buyers).
Depending on the issues with the complex/HOA and the financing options available, we have seen complexes lose 25% to 50% of their value when they become non-warrantable.
In the olden days, the issues that made condos non-warrantable included:
- Litigation involving the HOA
- Owner occupancy ratios (need to be over 50% – for FHA and investor financing only)
- Too much commercial use (35% limit)
- Structural issues noted in the HOA minutes or MLS
- Concentration Issue (one owner can’t own more than 20% of the units)
But today, the two big issues we see over and over are insufficient reserves and/or inadequate insurance.
What happened? Inflation pushed up repair costs, condos got old, insurance costs went way up, and the occasional complex fell into the ocean (that seems to make lenders nervous).
III. Solutions?
This is going to sound really salesy and self-serving, but that is only because this is really salesy and self-serving (but it’s also true).
All parties involved with condos (buyers, sellers, and agents) desperately need a lender that specializes in condos.
The reason is this: the condo financing realm is extremely complex nowadays! And there is no way a lender that does not specialize in the realm can begin to offer adequate solutions.
- Full-Time Condo Desk: A lender needs a full-time condo desk to simply spot the issues up front, and to then suggest solutions.
- Understand ALL financing options: A lender needs to understand the myriad options that have surfaced for non-warrantable condo financing over the last five years (we now have over 25 investors who will facilitate it – and just understanding the hundreds of guidelines alone is a herculean task).
- FHA Single Unit Approvals: A lender needs to understand how to do FHA single-unit or spot approvals (to get a single unit approved for FHA financing), as that has proven to be a fantastic solution for us on many occasions now.
- Low Rate Options: A lender also needs non-warrantable financing solutions for strong borrowers and/or condos with only minor issues with rates as low as anything Fannie Mae can offer. In years past, the only options involved rates that were 1% to 2% higher than Fannie Mae’s.
In all seriousness, I am understating the level of complexity there is now and the expertise required. And that is why this is another niche that has been rewarding us nicely over the last year.
Condo problems will intensify, too, as Fannie and Freddie are tightening up on their requirements in August.
TLDR: If anyone has a problem condo, we’d love to help! (because we’re really good at it)
