Fannie Mae recently announced several changes to its standards and reintroduced its Project Eligibility Review Service (PERS). Read PDF. PERS review is required for new and newly converted condominiums in Florida, while optional in projects located elsewhere throughout the United States. Fannie Mae likewise announced an intention to publish a list of ineligible projects, which are those projects failing the PERS process. It will be much more difficult for purchasers to obtain mortgage financing if the mortgage cannot be sold on the secondary market to Fannie Mae and the like. Its requirements include the following:
- At least seventy (70%) percent of the units must be pre-sold in a new condominium or a newly converted condominium. Waivers are available on a case-by-case basis.
- In existing projects, the Association must have evidence of fidelity bonds or insurance (which is required pursuant to §718.111(13), Florida Statutes for all persons who control or disburse funds for a Condominium Association).
- A single person or entity cannot own more than ten (10%) percent of the project, although exceptions are available on a case-by-case basis.
- No more than fifteen (15%) percent of the total units in the project may be thirty (30) days or more behind in payments to the Association.
- Borrowers must purchase additional hazard insurance (unit owner coverage), regardless of the Master Policy.
- The project must budget for “adequate” reserves (generally defined as 10% of the annual budget but determined on a case-by-case basis).
- The lender cannot bear responsibility for payment of more than six (6) months’ of unpaid dues or charges.
Thus, changing §718.111(11), Florida Statutes to eliminate mandatory unit owner insurance coverage may not necessarily change the fact that more condominium unit owners (in Florida and elsewhere) will purchase said coverage. Lenders that want to offer financing compliant with Fannie Mae standards will require new purchasers to provide evidence of personal coverage (contents coverage, generally a HO-6 policy), much like the requirement for borrowers purchasing single family homes. Moreover, efforts to change lender responsibility for condominium assessments and dues after mortgage foreclosure are likely to fail if those changes would preclude lenders from offering the attractive rates and down payments available for Fannie Mae backed mortgages.