Fannie Mae and Freddie Mac to add transparency to condo lending blacklists

The article on the front page of the Miami Herald on Dec. 17, revealed some welcome news for the thousands of condominium communities that have been placed on confidential blacklists by the government-sponsored Fannie Mae and Freddie Mac mortgage buyers and backers behind more than 70 percent of all U.S. residential loans.

It reported: “. . . the Federal Housing Finance Agency said last week that both Fannie and Freddie will make the process significantly more transparent. According to the agency, Freddie Mac will make it easier starting early next year for associations to find out if their buildings qualify for its financing, and will establish an appeal process for those that do not.”

The article by the Herald’s Andres Viglucci also confirmed that Fannie Mae maintains a confidential database of condo buildings, including hundreds in Florida, that are unapproved for the acquisition of loans by the industry giant due primarily to maintenance and financial issues. Inclusion makes its practically impossible for owners to qualify for conventional mortgages or refinancing options at competitive rates and terms.

“The blacklist appears to have grown substantially since Fannie Mae enacted stricter requirements for condos to qualify for loans and mortgages that it backs a year after the Champlain Towers South collapse in Surfside in 2021, as associations across Florida and the rest of the country struggle to catch up with delayed maintenance and develop plans to address needed critical repairs,” it noted. “. . . After initially stonewalling, Fannie Mae has recently acknowledged the list’s existence. Fannie officials say they will create a searchable database for use by owners and associations, though it won’t be online until the third quarter of 2024.”

According to a recent announcement by the Federal Housing Finance Agency, which controls the two government-sponsored enterprises, Freddie Mac will also implement enhancements later this year and in early 2024 that will provide greater clarity with respect to associations’ eligibility process, as well as introduce a new appeal process. It will provide information on its website by Feb. 26 on how condominium associations can inquire about their community’s status, and beginning in February it will warn associations before they become ineligible and work with them to correct problems.

The increased transparency from the mortgage giants represents a major concession for associations, which will be able to identify and correct any potential inaccuracies and incomplete information that may have wrongly led to their designation. It will also reinforce the importance of reserve studies and funding for predictable maintenance and repairs rather than relying on special assessments for temporary increases to unit owners’ payments.

Associations that land on these lists, which will need to be monitored upon their availability, should focus their efforts on addressing and correcting the issues that led to their designation. These typically include inadequate reserves, structural/construction issues, insufficient insurance, too many renters, and outstanding delinquencies and special assessments.

Even more critical for ensuring access to competitive financing to help bolster the structural integrity of the nation’s aging condominium infrastructure will be the passage of the federal Making Condos Safer and Affordable Act of 2023. Introduced by Florida U.S. Reps. Debbie Wasserman Schultz, whose district includes Surfside and the site of the collapse, and Bill Posey, this bipartisan legislation would expand and ensure access to financing for structural and safety repairs. The Act would provide access to low-interest, government-backed loan products for the millions of Americans living in condominium association and housing cooperative buildings, approximately two-thirds of which are older than 30 years.

The Community Associations Institute, which is the leading organization representing the interests of communities with associations, is calling on association directors, professionals and residents to contact their members of Congress in support of this legislation. The organization maintains an online action center and uses VoterVoice to help individuals connect with legislators over this and other important issues, and we encourage everyone to visit www.votervoice.net/CAI/home to learn more and voice their support.

Michael L. Hyman, with the South Florida law firm of Siegfried Rivera, has focused on community association law since 1970 and is based at the firm’s Coral Gables office. He is the author of the two-volume “Florida Condominium Law and Practice” and is board certified as an expert in association law by The Florida Bar. Michael is a regular contributor to the firm’s Newsroom blog at www.SiegfriedRivera.com/blog. The firm also maintains offices in Broward and Palm Beach counties, and its attorneys focus on real estate, community association, construction and insurance law. www.SiegfriedRivera.com, MHyman@SiegfriedRivera.com, 305-442-3334.