The tragic collapse of the Champlain Towers 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—multifamily 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 publication for the mortgage banking sector, Fannie Mae is responding to the Surfside tragedy by requiring co-ops and condos to address repairs and maintenance that impact the safety, soundness, structural integrity, or habitability of their properties before it will issue financing. 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 special 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 effect for whole loans purchased on or after January 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 further notice,” according to the GSE’s whitepaper 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 Collateral 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.