This article entitled “Fannie Mae adds restrictions for backing condo mortgages : WSJ – Update” appeared in the RTTNews on March the 18th, 2009. The staff writer wrote:
“Government backed mortgage finance company Fannie Mae (FNM) has enforced stricter guidelines for obtaining condominium mortgages, effective March 1, the Wall Street Journal reported Wednesday. The restrictions come at a time when the U.S. housing market is braced for a condo rush this year, and are expected to add pressure on developers struggling in the ongoing housing slump.
According to the report, Fannie Mae has halted mortgage guarantees in condo buildings where fewer than 70% of the units have been sold compared to the earlier 51% benchmark. Additionally, loans for sales in buildings where 15% of current owners are delinquent on association fees or where more than 10% of units are owned by a single-entity will be more harder to come by for developers and aspiring condo owners, WSJ said.
Fannie Mae has reportedly said that the new rules protect borrowers from buying units in buildings that have a high risk of failure and prevent the companies from throwing good money into troubled developments. Developers can petition Fannie Mae for an exemption from the rule and 50 exceptions have been made so far.
Conversely, condo developers are of the view that the rules seem to go against federal efforts to speed along a housing market recovery as they may hasten the failure of countless buildings in the U.S.
Rules are set to become more stringent as both Fannie Mae and main rival Freddie Mac will reportedly increase fees on condo buyers in April. As per the new policy, buyers without at least a 25% down payment will have to pay closing cost fees equal to 0.75% of their loan, regardless of the borrower’s credit score, the Journal added.
In the backdrop of the new rules, developers are seemingly stretching their limits to sell units. Citing people related to the matter, developers are reportedly turning buildings into rental apartments, selling units at auctions at steeply discounted prices, or using Chapter 11 bankruptcy to restructure and use remaining capital to provide seller financing.
FNM ended Tuesday’s trading at $0.57 on the NYSE.”
This new 70 percent sold or closed benchmark is going to a very difficult hurdle for projects like 5th & Main, Rolling Mill Hill, The Velocity, Rhythm and the Terrazzo to meet.