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.
Welcome to the world of South Florida. We have been going through this with Fannie and Freddie since the federal government took over them. While the current administration talked about how they were trying to support the housing market, through Fannie and Freddie they were trying to kill it. They red-lined essentially every condo building in South Florida either because the developer owned too many units or because more than 10% of owners were behind on association dues. Buyer is willing to put 50% down?-Fannie doesn’t care- no loan. Now here is the real irony – by refusing to make loans to new buyers in those condo buildings, most of the current owners got foreclosed on, because even though they could find willing buyers, the buyers couldn’t get loans – and guess who held all those loans that got foreclosed on – you got it, Fannie and Freddie. So by refusing to make loans, they brought about their own continued downfall, handing themselves massive losses.