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If so you need to become aware of the Federal Housing Finance Agency's plan to prohibit Fannie Mae, Freddie Mac and other Federal Home Loan Banks from purchasing mortgages for properties in communities where the covenants contain transfer fees.

If you read the newspapers (or watch news on the internet) you already know that mortgage rates are lower than ever before.  Wouldn't it be great to refinance at 4.5% (3.8% for 15 year conventional loans)?  Think about how monthly savings would help your cash flow needs. For owners trying to sell properties, lower mortgage rates usually mean higher sales prices.  For those looking to buy a home, lower rates mean more buying power and/or more cash flow to meet other needs, such as community assessments.

In order to qualify for those low rates, the mortgage must be backed by a government or quasi-government entity.  FHA/VA loans have great rates and very low down payment requirements (usually 3%).  The government guarantees those loans so the lender is protected in the event of default.  Fannie Mae, Freddie Mac and other GSEs (government sponsored enterprises) buy loans from lenders - the lender is able to offer the low rate since it sells the loan (and the risk) to one of these entities.

The Federal Housing Financing Agency (FHFA) is a government agency created to regulate and oversee GSEs.  One of its primary purposes is to make sure the GSEs operate in a "safe and sound manner" - so it reviews business practices on the part of the GSEs.  It recently proposed a new regulation that, if adopted, would prohibit buying loans for properties in communities where the covenants contain a private transfer fee.  

What is a private transfer fee?  Well, it could be many things.  Community Associations Institute (CAI) defined this term as "any fee or payment required at time of sale of a property by a deed or covenant restriction."   Typical community association fees include:

• Screening/Background investigation fees;
• Estoppel fees;
• Capital Improvement assessments;
• Mandatory Country Club initiation fees and the like.

While the regulation is not intended to limit mortgages as a result of these types of fees, it could have that impact if adopted.  In fact, Florida law specifically excludes certain typical community association fees from the definition of transfer fees in Section 689.28, Florida Statutes. 

CAI has created a survey for community leaders and managers.  It will compile the results and use them in an attempt to convince FHFA not to limit mortgage options for properties in community associations.  If distressed owners cannot sell their units/lots/homes because buyers cannot obtain mortgages, community associations will continue to suffer.

Please take a look at this survey.  Click HERE for the Survey.

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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.

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