A Condo Quaqmire (And I’m Not Talking About the Character on Family Guy)

I read an article the other day about how would-be condo/coop buyers in New York—even those with great credit—can be denied a mortgage simply because of where their desired unit is located.

That’s because some major lenders have strict rules about the properties their borrowers can buy into. For instance, Fannie Mae, and to some extent, Freddie Mac, probably won’t give you a mortgage if the condo you want is in a building with a lot of commercial space. You’ll also be declined if too many of the property’s units are held by one entity.

So say you’re shopping for a condo and find an awesome deal at a newly constructed building where the developer, in order to sell units in this tough market, has cut prices. In the example given in the article, Fannie declined one borrower’s mortgage application because the sponsor still owned about a quarter of the units. That borrower was able to get a waiver after Fannie did a deeper examination of the building’s finances, but it took some time. In another instance, one borrower was declined a refinance because commercial tenants occupied 40% of the building. That borrower is currently going through an appeals process.

It’s a little bit of a Catch-22, isn’t it? The developer is trying its best to sell the condos in its building. Buyers can’t get mortgages because the sponsor still owns too many units. If buyers have no funds, there’s no one to buy the units, leaving them in the developer’s hands.

Oy.

Fannie Mae maintains its policies are flexible, and in most cases, borrowers do eventually get approved after a long process and piles of paperwork. Still, the homebuying process, especially for first-time buyers, is a daunting one as it is.

It’s also a bit concerning that folks shopping for a condo in one of the biggest markets in the country would face such challenges, especially in today’s environment. Methinks some parties (((cough, lenders, cough))) aren’t doing all they can to “help solve the nation’s housing problems.” Sure, a lax attitude toward the mortgage approval process played a major role in bringing us into this mess, but I think that, in some cases, it wouldn’t hurt to ease up on policy.

Much Ado About Fannie & Freddie

Earlier this week, Senate Democrats voted down a bill that would have essentially dissolved Fannie Mae and Freddie Mac after their conservatorship period was over. Introduced by Senate Republicans John McCain (AZ), Judd Gregg (NH) and Richard Shelby (AL), the amendment to the financial regulatory reform package would have taken the GSEs off of taxpayer support and mapped out a plan to wind down and dissolve them over 15 years.

At the same time, both GSEs in the past few days have reported substantial first-quarter losses due to continued weakness in the market. Freddie Mac posted a $6.7-billion net loss, up $2 billion from the prior quarter and down from $10 billion the same period a year ago. Fannie Mae’s first-quarter loss came in at $11.5 billion, down from $15.2 billion in the final three months of 2009 and $23.2 billion in the first quarter. The losses were attributed to credit-related expenses and the impact of new accounting standards.

Separation of Church and State and Real Estate

A recent suit in US District Court over whether an Arlington County affordable housing project violated the first amendment brings to light some questions over partnerships formed to develop real estate projects.

A local resident filed the suit, alleging that an affordable housing development above a church violated the separation of church and state. Bozzuto Development is building the Views at Clarendon, consisting of eight floors of primarily subsidized housing for low- and moderate-income tenants above a new church sanctuary and child-development center. The church, seeking to renovate its sanctuary, sold the air rights for $5.6 million to a nonprofit group that’s building the apartments. Some $48 million in county and state loans and tax credits is helping finance the project.