Freddie Mac took a giant step toward transparency last week when it announced sweeping changes to its condominium and housing cooperative financing system.
The government-sponsored enterprise that underwrites mortgages is introducing a tool that indicates whether a community is “certified” for financing or “not eligible”—and providing guidance that explains why a community may not be eligible. Freddie Mac and Fannie Mae, another government-sponsored enterprise, came under criticism in recent months after creating lists of ineligible communities. Most communities were unaware of being on the lists—let alone the reason why—until a potential homebuyer discovered they couldn’t use a Fannie- or Freddie-backed loan to purchase a unit.
The companies support around 70% of the mortgage market, according to the National Association of Realtors. Most conventional loans offered by private lenders end up being backed or purchased by Freddie Mac and Fannie Mae. Without that financing, homebuyers typically are forced to turn to cash purchases or higher-interest loans.
In July, the two companies released updates to project eligibility standards—specific requirements designed to verify that each common interest community with more than five attached units qualifies for mortgage lending availability. Freddie Mac and Fannie Mae began developing—and released temporary guidelines—after the Champlain Towers South condominium collapse in June 2021. They place an emphasis on building safety, soundness, structural integrity, and habitability.
CAI believes it is critically important for condominiums and housing cooperatives, some of the country’s most affordable housing options, to have access to loans that will meet Fannie Mae and Freddie Mac qualifications.
In Freddie Mac’s announcement this week, the company is implementing a “project certified” status. Lenders can submit information on condominiums and cooperatives, and Freddie Mac will use their current information to determine eligibility status. A “certified” building will signal to lenders that Freddie Mac will buy the loans.
Additionally, beginning Feb. 26, Freddie Mac will have an “ineligible” status for those communities that don’t meet its requirements. Freddie Mac will allow board members, community managers, and business partners to inquire about the status of a building. If it is ineligible, the company will detail why and allow for an appeal process.
CAI is extremely pleased to see this level of transparency by Freddie Mac and is encouraged by this step forward to provide solutions to improve access to lending.
This is an important move at a time when there is a heightened awareness and increased emphasis on building maintenance and challenges related to property insurance requirements. Restricting access to lending lowers property values and leaves less money and incentive for homeowners to invest in maintenance.
For more than a year, CAI has been working with a coalition of partners, including the Community Home Lenders of America and the National Association of Realtors, to voice concerns about Fannie Mae’s and Freddie Mac’s lending guidelines. We’ve been emphasizing the need for transparency in the development of guidelines and policies and publication of ineligible condominium and housing cooperative projects. Freddie Mac’s update is a step in the right direction.
CAI has not heard from Fannie Mae regarding how they handle condominium project eligibility and transparency. Stay tuned for more information as it becomes available.