Fannie Mae & Freddie Mac are two of the biggest players in the mortgage market, particularly the secondary mortgage market, where mortgages are bought and sold after they have been originated. This article will look at a brief history of Fannie & Freddie and the new condominium questionnaire requirements. We will also go over some best practices for board members and the pros and cons of filling out the questionnaire vs. opting out.
A Brief History
Fannie Mae was created in 1938 as part of the National Housing Act, and Freddie Mac was created in 1970 as a result of the Secondary Mortgage Market Enhancement Act. Both Fannie Mae and Freddie Mac buy mortgages from lenders and then either hold them in their portfolios or sell them to investors to provide liquidity, stability, and affordability to the mortgage market. Both entities are government-sponsored enterprises (GSEs), which means that they're backed by the full faith and credit of the US government.
The New Questionnaire
In January 2022, Freddie Mac & Fannie Mae came out with a new condominium questionnaire (or the "Condominium Supplement") that is filled out for loans obtained to purchase condos.
Why a new questionnaire? Some of the reasoning can be traced to the Champlain Tower collapse, which occurred in Surfside, Florida, in 2021. The post-collapse investigation revealed that the condominium building had significant deferred maintenance, which lenders find problematic.
To protect themselves from purchasing loans for units in potentially unstable or dangerous condominium buildings, Fannie & Freddie decided to request more information on condo questionnaires, mainly information related to maintenance and community financials.
So, what are some of the new Fannie & Freddie requirements for condominiums? For one, at least 10% of the association's annual income must be placed into a reserve account, and the budget must reflect such. Why do they care about your reserve accounts? Again, this goes back to the deferred maintenance and safety issues it may cause. If a disaster strikes, natural or otherwise, lenders want to ensure that the association has been financially responsible and has set aside funds to deal with significant repairs.
Though filling out a questionnaire may sound easy enough, Fannie & Freddie will want to see some of your association's documents before determining if units in your condo building(s) are eligible for their loans.
Some examples of supplemental documentation include:
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