Fannie Mae, Freddie Mac & Community Associations - The Uncertain Future
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A housing conference is taking place today in Washington, D.C., where industry leaders and government officials are discussing the future (if any) of Fannie Mae, Freddie Mac and other Government Sponsored Enterprises (GSE) that offer mortgages.
These entities (Fannie, Freddie, etc.) are backed by the U.S. government. Government backing lowers lending costs which translates to lower mortgage rates for consumers. In theory, lowering mortgage rates and providing consumers with more access to capital encourages home ownership, increases home values and supports thousands of industries with hundreds of thousands of employees. Both Fannie and Freddie have been in conservatorship since 2008 and supporting cash-flow needs with a credit line from the U.S. government. Now the government (and many industry experts) wants the private sector to play more of a part in home financing.
What does this mean for community associations? It could mean several things:
- It could mean that future home purchasers will have to fund a larger down payment. If home or unit owners have more at stake in the property they will be more likely to take care of the property and less likely to default.
- It could mean that the historically low mortgage rates will go up - making homes or condominium units less affordable. Higher interest rates may prolong sales of abandoned properties.
- It may mean that Fannie, Freddie and other GSEs will be required to dispose of properties acquired as a result of failed mortgages even at a loss - resulting in better bargains.
Fannie Mae recently auctioned close to 100 South Florida properties. Those properties were only offered to owner-occupants (individuals and families who plan to live in the homes), not investors, in an effort to stabilize neighborhoods severely impacted by foreclosures.
There are some obvious benefits to GSE financing and some obvious detriments. One benefit is flexibility - government backing allows Fannie Mae to offer hardship relief to home/unit owners. For example, Fannie has the ability to offer loan forbearance to mortgagors plagued with chinese drywall. Skipping six (6) months of principal payments may be all that is needed for homeowners to catch up with other financial obligations (such as community assessments).
Community association leaders and members can take strategic actions to stabilize their own communities. Community associations have the power to regulate use and occupancy of the properties, the level of maintenance and care required, and can even establish guidelines regarding the financial responsibilities of new members. With a little planning, advice of counsel and other professionals and effort by board members, committee members and other volunteers - you can make your community better positioned in the future.
Fannie Mae and Freddie Mac have already intervened in HOA finances by requiring proof of minimum contributions to reserve studies before approving mortgages. FHA has attempted to require minimum funding levels for components of reserve replacement funds. The difficulties and issues that prompted the high level meeting on August 17 will only lead to more intervention into HOA finances. With the growing problems caused by inadequate reserve funding in aging communities, expect the mortgage financing agencies to dominate the finances of community associations. This will have a huge impact on sales of units and the potential lowering of values of properties in community associations.
My condominium board has just lent $2,100.00, out of the condo's bank account, to one of our employees without the approval of the unit owners, without the employee paying interest on the money or without a legal agreement.
Is there a 718 or any other law that gives the board the right to lend out our money without the unit owners approval?
RESPONSE: The condominium association is a corporation that has the powers set forth in the governing documents. Many times the governing documents provide the association with all of the powers of any other not-for-profit corporation. I suggest you write the board a certified inquiry asking for a reference to the authority for this action.