If you’re in the market to buy or refinance a condo, your mortgage application experience is about to get faster and perhaps even cheaper with mortgage giant Freddie Mac.
On Friday Dec. 8, Federal Home Loan Mortgage Corp. rolled out a tool called Project Assessment Requests, which promises to quickly (and for free) indicate if a condo community qualifies for Freddie Mac financing.
This tool, with the click of a few keys, spits out whether a condo community is either “project certified” or “not eligible.” (“Project,” by the way, is the name the government uses for condo communities.) If a project is certified, this means a lender likely needs only minimal underwriting, which saves them time and the borrower money.
Freddie Mac reps said the process to check a property takes “just seconds.” Any feedback on ineligible communities will provide lenders a framework on where to focus their review early in the origination process. The mortgage giant said a project status can change “if additional information is provided or if the identified issues are remediated, and the project then meets applicable requirements.”
A mortgage originator also can track what needs to be completed and even appeal, also at no cost.
You may recall that the landscape of condo sales changed radically after the Champlain tower collapse in 2021 in South Florida. The community’s HOA board had for years deferred maintenance on the two-tower property. Water damage in an underground parking structure eventually weakened the structure, sending it plummeting down around 1:30 a.m. on June 24 while many residents slept. The devastating collapse killed 98 people.
Today, mortgage lenders, especially government-sponsored enterprises like Fannie Mae and Freddie Mac, want to be sure homeowners associations are financially stable, properly managed and all common areas are sound before lending buyers money. In January 2022, the agencies launched a questionnaire to determine a community’s qualifications.
This new standards stalled myriad condo deals in California and nationwide, as buyers learned deep in the process that their prospective homes were not eligible for loans from the mortgage giants.
Freddie’s new condo tool vows to help increase application transparency, but borrowers still will need to rely on a loan officer to determine the status of a condo project.
Industry insiders, so far, are optimistic.
“Community Associations Institute is very encouraged by this,” said Dawn Bauman, senior vice president of government and public affairs at the trade association. “We hope this will decrease hurdles for sales in condominiums throughout the U.S.”
If the condo project isn’t Freddie Mac (or Fannie Mae) approved, buyers’ choices are limited. They can either try and address the deficiencies in order to get approval or the loan originator can attempt to find financing using a non-warrantable condo mortgage.
Non-warrantable mortgages are very expensive compared with Freddie Mac (or Fannie Mae) rates, if your loan originator can even find one. Freddie Mac offers mortgages with as little as 3% down with rates hovering in the 7% range.
Non-warrantable mortgages are (minimally) “20% down and 175 basis points higher in rate (8.75%) than conventional rates,” said Joe Lydon, co-founder and managing director of Lendsure.
Full disclosure: My firm, Mortgage Grader, is a Lendsure client.
If your property is not eligible under Fannie Mae or Freddie Mac rules, the status can still change or appealed. Beginning Feb. 26, 2024, even the HOA (not just the lender) can inquire directly if their project has a “not eligible” status and take action to address any issues that need to be remedied.
Here’s how things have worked until now …
The buyer and their agent find a condo and make the offer. Assuming a deal is struck, the buyer provides 3% (of the purchase price) as a good faith deposit to the escrow company. The buyer pays for a home inspection of $600 and a $650 appraisal. Oftentimes, the buyer fronts $300 for the condo documents for the lender to review.
Buyers and most real estate professionals assume excellent financing terms are available, without realizing how important it is to have a lender check a condo’s approval status. If it’s a non-warrantable condo, then the buyer is faced with a shockingly more expensive mortgage or canceling the transaction altogether. That’s a lot of wasted money and time.
To my knowledge, lenders typically check a condo’s eligibility with Fannie Mae, not wanting to go through the old, onerous Freddie condo-checking process.
It’s not clear to me if Fannie Mae’s eligible condo project standards are the same as Freddie Mac’s. My suggestion for any consumer is to have the lender check with Freddie Mac first. If the property is not “project certified,” then find out what you are up against in terms of approval deficiencies.
Other tips:
—If there is a lot to be done, then either get prepared for non-warrantable condo pricing or move on.
—If the hurdle feels surmountable, have your lender check Fannie Mae’s list for eligibility or see how quickly the lender can get the required goods for Freddie Mac’s condo team to review and approve it.
For now, we wait and see if Freddie’s tool works. And I can’t help but wonder if Fannie Mae follow suit. So far, the agency did not respond to my query.
Freddie Mac rate news
The 30-year fixed rate averaged 7.03%, 19 basis points lower than last week. The 15-year fixed rate averaged 6.29%, 27 basis points lower than last week.
The Mortgage Bankers Association reported a 2.8% mortgage application increase compared to last week.
Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $766,550 loan, last year’s payment was $356 less than this week’s payment of $5,116.
What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with one point: A 30-year FHA at 6%, a 15-year conventional at 6%, a 30-year conventional at 6.375%, a 15-year conventional high balance at 6.625% ($766,551 to $1,149,825 in LA and OC and $766,551 to $1,006,250 in San Diego), a 30-year high balance conventional at 6.875% and a jumbo 30-year fixed at 6.875%.
Note: The 30-year FHA conforming loan is limited to loans of $644,000 in the Inland Empire and $766,550 in LA, San Diego, and Orange counties.
Eye-catcher loan program of the week: A 30-year jumbo, adjustable, fixed for the first five years, rate at 7% with 1 point cost.
Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or jlazerson@mortgagegrader.com.
