It’s been a little over a month since Fannie Mae and Freddie Mac tightened the screws on condo lending.
Effective Aug. 3, Fannie Mae retired its limited review process, and Freddie Mac ended its streamlined review process, which allowed lenders to approve conventional mortgages without a deep dive into a condo associations’ finances. All conventional mortgages have to go through the full review process, unless they qualify for a waiver. Projects of 10 units or fewer fall under the waiver qualification.
Forty percent of condos nationwide used the limited review process last year.
And… Florida has the highest concentration of condos in the country, many of which are not professionally managed, which means we’re likely feeling the biggest effects of these changes.
I spoke with Melissa Cohn, regional vice president of William Raveis Mortgage, about what it’s been like to arrange loans for condo sales in recent weeks. Cohn, who is based in South Florida, was blunt.
“It feels like you’re having your wisdom teeth pulled out,” she said. These deals are still happening, but “the question is the pricing.”
It also takes longer, because mortgage brokers are waiting for condo associations to deliver the right documents. The result, once they secure the required information, is that more buildings aren’t meeting Fannie or Freddie’s thresholds, which means buyers have to go with a non-QM (non-qualified, aka not traditional) lender, typically offering higher interest rates.
Mortgage brokers may be finding themselves doing twice the work they did prior to Aug. 3 now that they are submitting applications for traditional and nontraditional loans.
Fannie Mae also clarified its policy that allows lenders to use a reserve study to show that a building has sufficient reserves when it’s not budgeting for replacement reserves under Fannie’s requirements. Now lenders have to verify that the budget is using the highest recommended reserve allocations, and lenders can no longer use a baseline funding method, which historically has allowed the reserve cash balance to approach zero.
More changes are on the way. For loan applications dated on or after Jan. 4 of next year, Fannie Mae is increasing the minimum reserve contribution for condo associations to 15 percent from 10 percent.
“A lot of these buildings don’t have the financial capacity to increase their reserves to 15 percent,” Cohn said.
All of this, she said, “will put a premium on the value of the buildings that are compliant.”
What we’re thinking about: Are you starting to see the divide between financeable and unfinanceable condo buildings? Do you have any stories to share? Send me a note at kk@therealdeal.com.
Residential: Art collector and philanthropist Kimberly Bluhm bought the waterfront home at 608 Island Drive in Palm Beach for $40 million, or about $6,765 per square foot. That’s more than double the $15.5 million businessman Roger Webb and Raisa Webb paid for it in 2019.
Commercial:Mill Creek Residential sold the 397-unit Modera Academical Village apartment complex at 3440 Southwest 76th Terrace in Davie for $154.5 million. The buyer was an entity tied to Goldman Sachs’ Dallas office.
— Research by Mary Diduch
Palm Beach’s “Ham and Cheese House” at 920 South Ocean Boulevard hit the market for a whopping $105 million. The house earned its nickname from its iconic red-and-white facade, but its true name is Casa Eleda, after early-1900s banker Mortimer Schiff’s wife, Adele (or, Eleda spelled backward). Acclaimed architect Maurice Fatio designed the 13,200-square-foot home, whose price pencils to $7,972 per square foot. Christian Angle of Christian Angle Real Estate has the listing.
— Alissa Gary
Affiliated Development co-founder and President Nick Rojo died last week at the age of 44. The Palm Beach County native worked in commercial real estate, developing more than 2,000 apartments across South Florida through public and private partnerships. A cause of death was not revealed.
- Coconut Grove’s historic Pan Am seaplane terminal will remain the site of Miami City Hall, easing worries that the building would be redeveloped, the Coconut Grove Spotlight reported. The city has owned the building since 1946, and it’s been the city’s home base since 1954.
- David Armstrong, president of St. Thomas University in Miami Gardens, stepped down from the role more than a month after the university began investigating claims that he violated university policy, the Miami Herald reported. He was president of the private Catholic university for eight years. The nature of his violation is unclear.
- In Tampa, city officials pushed discussions on the next step of the $2.3 billion Tampa Bay Rays stadium deal to Nov. 12, according to the Tampa Bay Times. The Community Redevelopment Agency was set to discuss changes to four neighborhoods, a provision that helped the stadium deal gain support.
- Space Florida, the state’s aerospace development group, is investing $277 million into private projects along the Space Coast, Florida Today reported. That includes funding for projects with Relativity Space, Blue Origin, United Launch Alliance, SpaceX and a mystery company known as Project Horseshoe.
— Alissa Gary
