It just got a lot tougher to buy a condo
NATION'S HOUSING
WASHINGTON -- If you own or plan to buy a condominium, an ominous new phase of the mortgage credit squeeze could be on your horizon.
As a result of underwriting changes by giant investors Fannie Mae and Freddie Mac, plus severe new restrictions by private mortgage insurers, getting a loan on a condo unit -- or even refinancing one -- could be difficult.
Starting May 1, for example, AIG United Guaranty, a major private mortgage insurer, no longer will write coverage on condominiums in hundreds of ZIP Codes across the country that it designates as having "declining" market conditions, including many areas of Southern California. The ban applies regardless of applicants' credit scores, assets or equity stakes.
Even in the healthiest markets, United Guaranty will require a down payment of at least 10% and will reject applications on units in condo projects where more than 30% of the owners are investors.
Buyers with 20% or larger down payments are not affected by the private mortgage insurance cutbacks.
Some mortgage insurers continue to accept applications on condos in declining markets but require down payments of at least 10%.
Fannie Mae, a dominant financing source for condo projects, has rolled out new procedures that some lenders say could tighten up the availability of loans to condo purchasers in the coming months. Freddie Mac has issued similar new guidelines.
Under Fannie Mae's changes, most of the due-diligence research on condo projects' key characteristics -- their legal documentation, the adequacy of association operating budgets, the percentage of unit owners who are late on association-fee payments, the percentage of space allocated to commercial use and the percentage of units owned by investors -- must now be performed upfront by loan officers.
Not only is this time-consuming and costly, but under the new procedures, Fannie Mae also expects the lender to warrant the accuracy of its research. Some condo legal documents run to hundreds of pages, yet lenders are supposed to take legal and financial responsibility for their accuracy.
"It's ridiculous," said Phil Sutcliffe, principal of Project Support Services of Lansdale, Pa., who helps put together condo project financing for developers. Not only does this shift huge paperwork and time burdens on lenders and brokers, but it also forces them to make "absolute judgments on things that are not absolute."
