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Streamlined Fannie Mae Guidelines Help Lenders Eyeing Hot Condo Market

By Kerry Curry | March 10, 2016

Streamlined Fannie Mae Guidelines Help Lenders Eyeing Hot Condo MarketKatie Findahl, 31, bought her first home – a condo unit – about two years ago. That was when rents began their rapid ascent in Austin, TX, which Money magazine has ranked as the best city for Millennials.

Findahl’s conundrum was finding an affordable house near downtown. Those she could afford required extensive repairs. She settled on a 1980s low-rise unit just minutes from the Austin entertainment district.

Condos have become a hot commodity in places such as Austin, Dallas, Denver, Miami, New York City and San Jose, CA. Especially among first-time Millennial home buyers and baby boomers seeking to downsize.

As the condo market heats up, Fannie Mae has sought ways to partner with mortgage lenders to facilitate condo lending. Condo values are appreciating faster than single-family homes – 5.1 percent annually compared to 3.7 percent, according to Zillow.

Services to Assist Condo Lenders

Jodi Horne, senior risk manager at Fannie Mae, says the company has made a series of policy changes in the past couple of years. They have helped streamline the condo lending process. Fannie Mae also provides its lender partners a variety of services to assist with condo financing.

“These markets are expanding and more condos are coming online,” Horne says. “It is a good time to take another look at those policies because you can approve some of these condo loans more quickly than you could in the past.”

For example, Fannie Mae lowered the presale requirement from 70 percent to 50 percent. Some lenders have not considered new project approvals because they perceived they were more difficult than approvals for established complexes, says Horne. But adjusting the requirements has made the process easier.

Gary Newman, director of credit risk at Fannie Mae, notes a policy change in late 2015 that also should help lenders seeking to lend on established condo and co-op complexes. The policy change involves projects that are built-out, but have eligibility issues. Projects Fannie Mae denied in the past may now be eligible for acceptance, he says.

Fannie Mae also offers these services to condo mortgage lenders:

  • Fannie Mae Project Eligibility Review Service (PERS) for Fannie Mae approval of new and established projects. The lender receives an invoice for applicable PERS fees.
  • Condo Project Manager™ (CPM™) – a Web-based portal to assist lenders in completing project reviews.
  • A Project Standards Review Team on point to answer lender questions through the project standards mailbox.
  • Webinars for live training.
  • Published resources, including on-demand training.

Opportunities for Mortgage Lenders

David Hosterman, branch manager at Castle & Cooke Mortgage in Greenwood Village, CO, in metro Denver, shared his view of lending opportunities in the area. Zillow has predicted Denver will be the nation’s top housing market this year.

“The Millennials are a big portion of the condo market here in Colorado,” Hosterman says. “Millennials have the mindset that they want something close to where they work. And they want something that is accessible.

“A lot of Millennials nowadays don’t even have cars,” he continues. “They want something in a populated area. They don’t want the maintenance involved with a single-family house. I think that holds true with people downsizing.”

Hosterman said Castle & Cooke is an approved Fannie Mae direct seller. It uses Fannie Mae’s CPM tool for its condo loans. And in the condo lending approval process, it has found Fannie Mae less onerous than brokers or correspondent lenders.

“From a selling standpoint, being able to sell directly to Fannie Mae enables us to get more condos done than our competition,” he says. That’s because the lender doesn’t have an additional layer of guidelines from a correspondent.

“The Fannie Mae approval process is also a safeguard for the consumer,” Hosterman adds. “The consumer may fall in love with that condo,” he says. “But once we review all the necessary paperwork, it may not be a sound investment for that consumer.”

The rigorous Fannie Mae lending/underwriting process assures that the mortgage company is lending on a condominium complex that is financially stable. That’s germane not only to the lender but to the homebuyer, he says.

First-time Buyers Find Condos Appealing

John Patrick Wade, 24, recently went from being a renter to a homeowner after buying a condo in Dallas. A condo, he said, was cheaper than a single-family house, more economical than renting and required less maintenance than a house.

“I’m a young guy,” Wade says. “I’m not sure I’m responsible enough to maintain an entire house.” He considers his one-bedroom condo a stepping-stone to a single-family home purchase in five to seven years.

Wade bought in an older complex significantly outside the city’s core but near a shopping destination under construction. The retail project includes a Trader Joe’s, a grocery brand popular with the Millennial crowd. Wade is hopeful the project will increase his condo’s value.

Horne said condos offer an affordable entrance into the housing market for first-time buyers. They also have maintenance-free appeal for empty nesters and provide opportunities for mortgage lenders seeking to expand loan production.

“If lenders are looking to speak more to Millennials who may be looking to get into their first home, especially in larger cities, condos may be the only affordable avenue,” she says. “For folks entering their golden years and looking to downsize, condos are a popular option.”

Kerry Curry is a freelance writer for several Texas and national publications and is the former executive and magazine editor of HousingWire.