Federal loan guarantor Fannie Mae will make its secret “blacklist” of condos it will not finance available to condo associations and unit owners next year.
Its counterpart Freddie Mac, meanwhile, will roll out new guidelines by early 2024 that will enable condos ineligible for financing to appeal their status.
The guarantors provide financing for 70% of home loans in the country. Typically, lenders write home loans and sell them to one of the two guarantors while continuing to collect mortgage and escrow payments.
In April, the Orange County (Calif.) Register revealed the existence of a spreadsheet that Fannie Mae distributed to lenders called “Condo Unavailable Projects and Phases Report” that lists hundreds of condominiums that do not qualify for financing from the agency.
The list is not meant to be distributed to third parties and is headed by the term, “Fannie Mae Confidential and Proprietary — Subject to Non-Disclosure Obligations.”
The list has become longer over the year, as Fannie Mae amassed information from condominiums about the status of needed structural repairs, reserves, lawsuits, special assessments and other issues. Between April and October, the list grew from about 1,700 to 2,306 properties, and 34% are located in Florida, according to the law firm Allcock & Marcus, headquartered in Massachusetts with an office in Florida, which says it obtained the list from a third party who got it from a lender.
Associations and unit owners typically only learn that their properties are on the list after identifying potential buyers and submitting mortgage loan applications to lenders, who check to see if their property is on the list. If the guarantors won’t finance a mortgage, the seller is left to find an alternative lender or another buyer who will pay cash.
Unlike Fannie Mae, Freddie Mac does not distribute a “blacklist” but designates properties that are ineligible for financing on a web app used by lenders. The two guarantors don’t use the same data but likely assign similar criteria, said Orest Tomaselli, president of CondoTek, a Philadelphia-based company that provides technology services to lenders.
Fannie and Freddie faced “a lot of pressure to be transparent,” Tomaselli said. “Homeowners and condo associations did not know what to do when they found out they were on the list. No financing means property values plummet.”
After learning of Fannie Mae’s list, Allcock & Marcus and other entities, including the trade group Community Associations Institute, began asking Fannie Mae to make the list public. They argued that condo associations deserved to know whether they were on the list so they could figure out how to be removed.
Last week, both Fannie Mae and Freddie Mac said they plan to introduce tools next year that will enable associations to easily find out whether their properties meet the guarantors’ criteria for financing, and if not, why.
Fannie Mae’s tool, a searchable database to be made available to associations and condo owners, will be online in the third quarter of 2024, according to an email from the Federal Housing Finance Agency, which controls the two guarantors.
Freddie Mac will introduce enhancements late this year and in early 2024 that provide “greater certainty” as to whether a loan to finance a condo unit meets Freddie Mac’s guidelines, the email said. The enhancements “will also allow homeowners associations greater clarity with respect to their project’s eligibility process, as well as introduce a new appeal process when projects are determined to be ineligible,” it added.
According to guidelines published last week on Freddie Mac’s website, information on how authorized condo association representatives can inquire about their condominium’s status will be posted by Feb. 26.
The FHFA, the email said, “supports a transparent process that provides visibility for loan originators and the homeowners associations responsible for managing and maintaining condo projects.”
Tomaselli said in an interview that he was “blown away” by Freddie Mac’s announcement. A closer look at new guidelines by the guarantor indicate that beginning in February it will warn condominium associations before they become ineligible, then work with them to correct problems, he said.
While the June 2021 collapse of the Champlain Towers South in Surfside is credited as leading to tougher lending standards by the guarantors, Tomaselli said the closer looks have been “a long time coming.”
“There are real problems in a lot of condo buildings,” he said. “Whether they haven’t maintained reserves properly or they haven’t done needed repairs, that’s impacting Joe and Mary Homeowner.”
Allcock & Marcus declined the South Florida Sun Sentinel’s request for a copy of the latest Fannie Mae blacklist it obtained, saying if such a list is published, it would likely reduce the value of impacted condominiums.
For that reason, executives of the law firm said they supported Fannie’s and Freddie’s plan to provide information to condominiums on a case-by-case basis rather than release lists of ineligible condos to the public.
The law firm currently operates a webpage — amcondolaw.com/resources/fannie-mae-blacklist/ — where condominiums and unit owners can submit their information to find out whether their property has been designated ineligible for financing by Fannie Mae.
“We don’t want to use the blacklist as an opportunity to smear condos and devalue them,” managing partner Edmund Allcock said by email. “The idea is for them to find out and take action.”
Among the actions condominium associations can take is hiring Allcock & Marcus to help them resolve identified issues and petition Fannie Mae to be removed from the list, said partner Jake Marcus.
Here are several of the issues that Fannie Mae uses to identify a condominium as ineligible for financing, according to Allcock & Marcus:
Inadequate reserves
Inadequate insurance
Too many delinquencies
Too much commercial space
Structural or construction issues
Outstanding special assessments
Too many rentals
Ron Hurtibise covers business and consumer issues for the South Florida Sun Sentinel. He can be reached by phone at 954-356-4071, on Twitter @ronhurtibise or by email at [email protected].
