2011 fannie mae and fha guidelines: implications for condos
TRANSCRIPT
: I M P L I C AT I O N S F O R C O N D OM I N I UM
FANNIE MAE & FHA REGULATIONS
OREST TOMASELLI, CEO, NATIONAL CONDO ADVISORS
: I M P L I C AT I O N S F O R C O N D OM I N I UM
FANNIE MAE & FHA REGULATIONS
OREST TOMASELLI, CEO, NATIONAL CONDO ADVISORS
NATIONALCONDOADVISORS.COM
OVERVIEW
The History of Condo: Fannie Mae, FHA, and Lenders
Fannie Mae & FHA Today
PERS CPM
DELRAP/HRAP
Top 5 Challenges for Condo Developments PorHolio Lenders Industry PredicKons
FANNIE MAE: A HISTORY 1990-‐2000s
1990s: Tighter guidelines with presale requirements • Loans below presale were originated through porHolio lenders
2000-‐2008: Agencies began to loosen condo standards. OriginaKng loans focused more on the credit rather than collateral • Loosening condo standards started with O/O 80% CLTVs and gradually expanded
• At the height 95% CLTV loans were originated with liYle to no review of the condominium elements2000-‐2008: Agencies began to loosen condo
• Most major lenders had waivers allowing even more flexibility
LENDER HISTORY 2000-‐2008
No presale requirement
Commercial space allowance up to 50%
Landleases rarely invesKgated outside of the term
CompleKon of common elements or addiKonal buildings rarely considered
Very liYle concern regarding conversions or current renters
Condos in resort areas rarely invesKgated outside of glaring condotel elements
HOA budgets and financials rarely ever reviewed
No Doc, Stated Income, NIVA, 100% financing, credit scores down to 580, etc…
Buyer credit docs valid for up to one year
FANNIE MAE: START OF CHANGE
Announcement 7-‐18 in November 2007 began major changes for condo approval • FNMA reKred the 1028 process
• Removed the ability for new condos to use Limited Review
• Put the emphasis of new condo review on FNMA CPM
• Provided 20% commercial space requirement
• Pushed responsibility to the lender • Major lenders sKll had their waivers in place
FANNIE MAE: START OF CHANGE
Announcement 8-‐13 in December 2008 created more thorough implementaKon of stringent guidelines Increased presale to 70% FNMA re-‐instated 1028 process now called PERS
Created a stronger reliance on FNMA systems (CPM and PERS)
Marked the beginning of more stringency for conversions, commercial space, and budgets
Marked the end to most major lender’s waivers
Mandated all new Florida condos sent to PERS
Began higher scruKny of condos in resort areas
FHA: A HISTORY 2009
Mortgagee LeYer 2009 46A&B • Created the DELRAP/HRAP process • Spot loans eliminated
• 30% presale for new condos • Allowed right of first refusal • 10 yr warranty not be required with CO and building
permits • Condo conversions will not have to wait 1 year for
eligibility • Provided 25% commercial space requirement • 10% line item for reserves
FHA: A HISTORY 2011
11-‐22 Mortgagee LeYer Guide • Time limits on 30% presale
• All conversions less than 2 years old to be approved via HRAP and requires a reserve study with 50% presale requirement
• More flexibility for sponsor ownership during conversion
• More stringent review for projects involved with aucKon, BK, deed-‐in-‐ lieu, asset sale, and receivership
• More stringent review of HOA budget and financials
CONDO APPROVAL OPTIONS TODAY
.
CPM: Lender Delegated Automated UW. Capability to reach 51% presale.
Lender Full Review
PERS Submission: UKlized many Kmes for excepKons (rent regulaKon, excessive commercial space, etc..) or markeKng purposes. Mandatory for Florida project. Cost for submission
FHA/VA Review: DELRAP or HRAP
PorHolio Lenders
New Condominiums
CONDO APPROVAL OPTIONS TODAY
.
• Limited Review (FNMA)
• Any opKons listed for new condominiums
Established Condominiums
TOP 5 CHALLENGES FOR CONDOS
1. Fannie Mae Legal Requirements
By-‐law revisions
Unit owner vote requirements
TOP 5 CHALLENGES FOR CONDOS
2. Non Gut Rehab Conversions
Established vs. Non Established
Mandatory reserve studies for newly converted
5 years of repair cost in reserve fund
TOP 5 CHALLENGES FOR CONDOS
3. Reserve Requirements
Departure from the Special Assessment
10% Line item within the budget
Ongoing contribuKon
TOP 5 CHALLENGES FOR CONDOS
4. Commercial Space
Fannie Mae: above 20% -‐trigger
FHA: above 25% -‐ cannot be approved
Condo hotel: prevalence
TOP 5 CHALLENGES FOR CONDOS
5. LiVgaVon
Trigger for Fannie Mae PERS and FHA HRAP submission
ConstrucKon deficiency
Slip and fall
PORTFOLIO LENDERS
Terms olen not as compeKKve: • Higher down payment requirements, interest rates, credit score
requirements
PotenKal downsides: • Usually not designed for LMI buyers • Not always reliable for long term.
• PotenKal probability to be “adversely selected” • Buyers not always comfortable with unknown sources for funding • Media has convinced many people to look for FNMA approval and
adequate presale requirements
INDUSTRY PREDICTIONS
Lenders will conKnue to become more knowledgeable through necessity
More buy-‐backs
Desire to lend to certain clientele
Some lenders to selecKvely choose to porHolio Presale being primary driving factor
Elements that would cause FNMA to never approve are less likely
Credit profile to be significant component
Less flexibility through FNMA and HUD Financial review to become a key component for reviews
QUESTIONS/COMMENTS?
*NaKonal Condo Advisors, LLC is not a law firm. None of the guidance or advice contained within should be considered or construed as legal advice from either NCA or any of its employees. We recommend you consult with your aYorney regarding the informaKon provided within.