Are You On Fannie Mae's Secret Loan Blacklist?

Fannie and Freddie have a growing blacklist for certain properties that they won't lend to, but it's not public and it could surprise you when you're trying to close on a deal. The Los Angeles Daily News first reported on this, saying the government-sponsored enterprises are placing condos, associations, and co-ops on the list for a variety of reasons, including deferred maintenance. (1)   Hi, I'm Kathy Fettke and this is Real Estate News for Investors. Please remember to subscribe to this podcast and leave us a review.   The president of Philadelphia-based condo and co-op lending service provider CondoTek told the Daily News that the blacklist has now grown to more than 1,400 properties. Orest Tomaselli says just 16 months ago, there were only 900 properties on the list.   New Tighter Standards After Condo Collapse   Fannie Mae and Freddie Mac tightened their standards after the collapse of Champlain Towers South in Surfside, Florida. The catastrophic failure of the 12-story condo building resulted in the deaths of 98 people and $1B in property losses.    HOAs started seeing a new questionnaire months later at the beginning of last year. According to the Daily News, Fannie and Freddie are using data from this questionnaire to determine whether a property has deferred maintenance, structural issues, or a lack of funds or insurance to cover needed upgrades or repairs.   Concerns That Questionnaire Creates Liability   The questionnaire has been controversial. Other than questions regarding maintenance and upkeep, they also include questions that could presume future liability for any deficiencies – questions like: "Is the HOA or Cooperative Corporation aware of any deficiencies related to the safety, soundness, structural integrity, or habitability of the project's buildings?"   The Orange County Register reported on a survey by the Community Associations Institute that shows 89% of the participants felt they might be held liable in the future because of questions they didn't know how to answer. Almost as many also feared liability exposure because they refused to answer those questions. (2)   News reports say that some condo associations and property management companies feel the questionnaires are "draconian" and have chosen instead to boycott Fannie/Freddie loans.   Questionnaire Alternative Not Well Received   The mortgage giants are offering an alternative although that hasn't gotten a great reception either. Instead of the questionnaire, the underwriter can provide reviews of board minutes from HOA meetings, engineering inspections, and local government inspections. Lenders weren't thrilled with that option because it could expose the lender to future liability issues.    Mortgage broker Jeff Lazerson says in the Orange County Register article, that 50% of the loans that his shop runs through Fannie and Freddie require a limited review and a shorter list of HOA questions. A Freddie Mac spokesperson says that: "Freddie Mac's requirements are designed to help ensure residential buildings with aging infrastructure are safe for their residents and the condos and co-ops needing critical repairs have a plan to do so."   Safety is of utmost importance, but with affordable housing in short supply, the questionnaire and the blacklist add two more obstacles for homebuyers looking for a lower price tag.   Secret Blacklist for Lenders & Servicers   As for the blacklist, it's reportedly available to lenders and servicers, but not the property owners or the public in general which includes potential buyers. That means buyers counting on a loan from Fannie or Freddie might not find out until the last minute.   Tomaselli says: "It's a crapshoot. The only way for you to find out if a project is on that list is if you apply for a mortgage and the lender runs that project to see if it's unavailable. And only then, typically, is the buyer informed." Buyers must then turn to riskier, more expensive mortgages to complete their transaction.    You'll find links to articles about the blacklist and the HOA questionnaire at newsforinvestors.com. As always, I ask that you join RealWealth for free to learn more about real estate, and subscribe to this podcast! We'd also appreciate a review on whatever podcast platform you are using.   Thank you! And thanks for listening, Kathy Fettke   Links:   1 - https://www.bisnow.com/national/news/capital-markets/secret-blacklist-of-condos-co-ops-means-some-buyers-ineligible-for-fannie-freddie-financing-118544   2 - https://www.ocregister.com/2022/02/24/condo-questionnaire-causing-some-boards-to-boycott-fannie-freddie-financing/