Benjamin Chiang nearly lost the chance to refinance his condominium when his lender discovered that many other people in the building were behind on their condo association dues.
"It made me a little peeved that my loan depended on the credentials and behavior of my neighbors," said Chiang, who bought his Arlington, Va., home eight years ago.
Condo owners share more than roofs and lobbies these days. They also share one another's financial burdens. New mortgage industry policies are forcing lenders to look more closely at the makeup of entire complexes before extending loans to prospective buyers or to people who want to refinance.
The increased scrutiny is making it tougher to buy -- and hence sell -- condos, which are widely considered the housing market's shakiest segment because they are popular with speculators and financially vulnerable entry-level buyers. The policies are also exacting higher fees and larger down payments from condo buyers while limiting where they can live.
A lot of foreclosure-related losses have come from condo lending, pushing prices lower and wrecking condo association budgets. Some areas have had particularly dramatic drops in sales volume -- as much as 50% down from 2006 in some Washington, D.C.-area counties.
"There's a recognition that a lot of condos are in weak hands," said Mike Larson, an analyst at Weiss Research in Florida. "There's a lingering fear that there will be more fallout and that's why more conditions are being attached to condo loans."
In Chiang's case, about 17% of the residents in his small building were more than a month late on dues -- just above the new 15% limit set by mortgage financiers Fannie Mae and Freddie Mac.
These two government-run firms buy only loans that meet their rules. Their size means they shape lending policy. Chiang ultimately got his loan, but only because he had more than 50% equity in his home, he said. "So my lender made an exception."
As the giddy days of the housing boom neared an end, the highflying condo market fell first and hardest. This region felt the pain acutely. Skittish buyers of fancy new units canceled their contracts in record numbers. Anxious developers converted condos to rentals. Others dramatically slashed prices, and sellers in older buildings cut their prices to compete.
William Rich, a vice president at the research firm Delta Associates, said the area's condo market may stabilize at the end of this year or in 2010. But it will take awhile for the mortgage industry to respond to improvements.
