Page 6 - CooperatorNews New York December 2021

6 COOPERATORNEWS — DECEMBER 2021 COOPERATORNEWS.COM CooperatorNews.com From COOPERATORNEWS.COM Fannie Mae Announces New Requirements Co-ops & Condos Must Fix Structural Issues to Get Funds BY DARCEY GERSTEIN Co-op & Condo Financing Looking for Loans BY DARCEY GERSTEIN Aging is expensive—and that goes double for residential buildings. Exterior deteriora- tion is inevitable, mechanical systems do not last forever, and everyday foot traffic and wear take their toll on even the sturdiest structures. For many condos and co-ops in the U.S. governed by boards made up of volunteer owners and shareholders, getting old—and sign some forms, and call it a day. According to Nicoletta Pagnotta, senior vice president the costs associated with it—can come as a nasty shock. Boards may find they are not of New York City commercial mortgage broker Meridian Capital Group, which focuses on equipped with adequate reserves to cover predictable replacements; in some cases, even if the multifamily market, there are five different types of lending institutions that can offer they do have the funds, the board may be stymied by bylaws requiring a full resident vote different options to borrowers: to approve certain expenditures. Thus, co-ops and condos often need to borrow money. This might be for a big project like a roof replacement, or (in the case of co-ops) it could be for an underlying mortgage on the entire property, which cooperatives tend to refinance rather than paying principal balances at the end of the loan term. To the average board member—whose experience with mortgages might be limited to the one they got to finance the purchase of their unit— the process and options can be pretty opaque. Institutional lending is a murky milieu in general, and co-op and condo financing is insurance policies. Since life insurance policies are generally long term, this particular especially so—even to experienced bankers and other financiers. Co-op and condo boards type of lender is a good fit for longer term financing.” Benefits of using this type of lender should be aware that even if your loan-to-value (LTV) ratio is extremely low, your bills include rate-locking up front (rather than having to wait for closing to take place) and the paid on time and in full, and your property well maintained, it doesn’t automatically make ability to seek additional financing. Among the drawbacks Pagnotta mentions are that your corporation or association a shoo-in for financing, or for terms that suit your needs. they don’t offer unsecured financing, and have higher loan minimums. There is a lot of nuance to this market, abundant red tape, and a number of pitfalls. Types of Lenders First of all, you’re probably not going to be able to just mosey down to your local bank, 1. Life insurance companies 2. Agency lenders 3. Portfolio lenders 4. Commercial mortgage-backed securities (CMBS) lenders 5. Swap lenders “Life insurance companies basically will lend against their own policy revenue,” ex- plains Pagnotta. “So what they try to do is match a loan term against some of their own continued on page 7 The tragic collapse of the Champlain Tow- ers South condo in Surfside, Florida, last June has prompted many industries to assess and reform their practices to enhance safety and oversight of the large—and growing—mul- tifamily building sector in the United States. Recent among them is mortgage giant Fannie Mae, the government-sponsored enterprise (GSE) that provides backing for millions of home loans throughout the country. Repair or Despair According to The MReport, a publica- tion for the mortgage banking sector, Fannie Mae is responding to the Surfside tragedy by requiring co-ops and condos to address re- pairs and maintenance that impact the safety, soundness, structural integrity, or habitability of their properties before it will issue financ- ing. This means that co-ops and condos with significant deferred maintenance items—or ones that have received a repair directive from a regulatory or inspection agency, such as a Department of Buildings (DOB) violation or Safe With a Repair and Maintenance Program (SWARMP) designation—will have to provide proof that they have completed those repairs before the loan will be eligible for delivery to the GSE. Additionally, Fannie Mae is now requiring co-ops and condos to maintain at least 10% of the corporation’s or association’s budget in a reserve account in order for their loans to be eligible for purchase. Lenders must also obtain and scrutinize information related to special assessments to determine eligibility. If the spe- cial assessment is related to safety, soundness, structural integrity, or habitability, all related repairs must be fully completed, or the project is not eligible. Fannie Mae’s new requirements go into ef- fect for whole loans purchased on or after Jan- uary 1, 2022 and for loans delivered into the MBS pools with issue dates on or after January 1, 2022. The requirements are characterized as “temporary,” but “remain in effect until fur- ther notice,” according to the GSE’s whitepa- per on the topic. These requirements apply to all loans secured by units in projects with five or more attached units, regardless of the type of project review or review waiver. The Importance of Reserves Fannie Mae Director of Single-Family Col- lateral Risk Management Jodi Horne explains in a blog post that condos and co-ops represent an option for homeowners and buyers that is relatively convenient and affordable—but says the need for ongoing maintenance should not be overlooked. “Condos and co-ops provide homeown- ership options in a variety of styles,” writes Horne. “High-rise buildings, which are es- pecially popular in urban areas and near beaches, may offer great views and rooftop decks—and they come with elevators and un- derground parking garages, like at Champlain Towers South, that require ongoing mainte- nance. Garden-style developments with three or fewer stories may have less obvious ongoing infrastructure needs, but foundations must be maintained to avoid water intrusion or struc- tural collapse, roofs must be maintained so they don’t leak or cave in, and balconies must be repaired or replaced periodically to main- tain structural integrity and remain safe.” Fannie Mae’s increasing role in the second- ary market for co-op and condo financing has prompted it to give enhanced consideration to the risks involved in these types of properties and to develop guidelines and restrictions that minimize risk both for lenders and investors and for property owners and shareholders. “With a shortage of housing supply,” states Horne, “it’s more important than ever for us to reaffirm our commitment to supporting sus- tainable homeownership in condo and co-op projects.” “Adequate financial reserves are critical to funding the significant maintenance that sup- ports ongoing viability of condo and co-op projects,” she continues. “To maintain home- ownership sustainability, Fannie Mae has long required scrutiny of project reserves on loans delivered to us, as well as disclosure of any special assessments and review of a num- ber of other important project characteristics that would impact mortgage borrowers. Our latest guidelines reinforce our project reserve requirements and focus on their importance.” According to The MReport, Fannie Mae is also conducting accompanying research on the challenges of aging condo and co-op infra- structure, and says it is “committed to provid- ing sustainable homeownership opportunities for a range of housing types and helping to protect borrowers from physically unsafe or financially unstable projects.” n