Stunning New Underwriting Guidelines to Affect Condo Ownership

By
Real Estate Agent with RE/MAX Associates CA 01048160

For owners of condominiums who want to sell or refinance, some stunning changes and challenges lie ahead.  In market areas across the entire country, things are looking to get more difficult for condominium owners to sell or refinance a condominium.

Announced effective May 1, 2008, if you own a condominium in a declining area, a major private mortgage insurance, AIG, will no longer write coverage.

Their decision is supposedly not going to be affected by the applicants standing on the application. This is not about the applicants credit score or assets. It is about whether the condominium subdivision where the home is located is situated in a declining market area. Other insurers may continue to write that insurance, but may also demand higher minimum requirements for down payments for entry-level buyers.  

In a corresponding change, Fannie Mae and Freddie Mac have rolled out new tougher underwriting guidelines for lenders who write loans for condominiums. This involves the level of due diligence that will be required to be performed upfront by the loan officer. What must be reconciled are the subdivisions characteristics and other "compensating factors" such as its legal documentation, adequacy of association operating budgets, percentage of non-owner occupants, percentage of late payers of the unit owners and the amount of reserves and what they are allocated to.

This type of information has usually been supplied here in Southern California by what is known as a Condo Cert. The difference now is that the lender must warrant its accuracy.

What may be onerous is the amount of time and research that it requires and then that the lender must take responsibility for its accuracy. I suspect there may be a conflict when the condominium subdivision owner realizes he can't sell his home because of an association's budget or under designated reserves.

The amount of staff time alone needed to accomplish this is going to make it more difficult for many lenders to do the loan and perhaps even impossible to do the loan if they don't have the staff to accomplish this requirement. My sense of this takes me back to an even more important question. Will these changes have an even greater effect on condominium values? Condominium associations especially those in declining markets may need to revisit costs, budgets and their reserves in overcoming these new challenges.

All these are changes are under the guise of protecting the borrower and better managing the credit risk in the marketplace. But what about homeowners who already own condominiums? If loans are going to get so difficult to administer as to discourage possible new homeownership, how will the current owners protect their homes value in this already declining market?

 

Posted by

Click On Photo Below If You Enjoy My Blog

 Thank You !

 

 

 

close

This entry hasn't been re-blogged:

Re-Blogged By Re-Blogged At
Spam prevention

Accessibility option: listen to a question and answer it!

To submit the form,
drag the robot to the circle on the side.

Type below the answer to what you hear. Numbers or words, lowercase:

Groups:
Realtors®
Localism Beta
Southern California Real Estate Forum
Posts to Localism
Real Estate Tomato Bloggers
Tags:
aig
condominium association
underwriting guidelines
condo ownership
condo cert
declining market

Comments 61 New Comment

Ambassador
1,224,093
William Johnson
San Diego Real Estate Voice, GRI CRS e-Pro CDPE
RE/MAX Associates

Hi Paul -I really don't see this as "lenders running scared". The guidelines put an even greater responsibility on them. The lenders don't set up the guidelines, at the least as far as I have ever understood. We tend to lump everyone together, and clearly here at least, differentiations need to be made. It is always great to have your insight.

Hello Michael- Increasing management fees? I would not guess that these new guidelines would cause that. You do bring some great new information forward about management company fees for document's and transfers however. Perhaps the CCI, Covenants Compliance Inspection will be a new lender fee instead of a management transfer fee?

Hi Sharon- The disclosure to the buyers is a probable necessity. I wonder though, who is going to tell the current homeowners? This tougher news that selling their condos may just be getting a bit more difficult.

Hey Jason- Knee-Jerk is " today". Everything seems to be that way. Even those that would wish to protect the consumer, but lenders, the REALTORS are not able to justly weigh the facts and come to a clear conclusion.

Terri- Thank you for this great information. This certainly took you some time to compose and would make a great post all in and of itself. Thank you again. Very informative and I will spend an equal measure of time to learn the components of your insight is presented.

Geoff- Great information. Thanks for the reminder about these missed HOA payments. They also seem to be having an impact on some associations and why this issue was included in what the lenders needed to discover and certify.

Hello Ann- We will get through this and it seems to be an overreaction by Fannie and Freddie and others. It will in time, stabilize I am sure. I just have to believe this. In the interim, we can only do our best. We can greatly more empower our consumers by being current with new information.

Greg- Everything in life, good or bad, is an opportunity for someone. My concern is not so much focused on future buyers, but on current owners. If the effect of this causes them more financial loss, that is wrong. ( Even if someone else can seize it as an opportunity ).

May 02, 2008 11:48 AM
Rainer
35,977
Jason & Deanna

More regulation and paperwork is never a good thing. I think this could make small loan companies flee the marketplace. Less lending options usually mean higher costs for the consumer.

May 02, 2008 11:36 AM
Ambassador
1,224,093
William Johnson
San Diego Real Estate Voice, GRI CRS e-Pro CDPE
RE/MAX Associates

Christy- it's perhaps an overreaction to the market in hopes of stemming future losses.

Roland- good question. What we could all guess is that there will be more !

Pam- RUMBLING! Now that is the word I should have used in the post! Thank you for dropping by and sharing a great word.

Hello Eric- you make another great analogy. Stay tuned, it will get interesting when the real impact of this hits, and we will see if it changes for the better?

Hello Kathy- I wish it weren't either. Maybe it will not be as onerous as it sounds? Then again..............

Hi Laura- I empathize with the insurers as well. If they don't make a profit they can't pay off the clients. Catch 22

Hello Jason and Deanna- Thanks for dropping by. I suspect you are very correct. And your final analysis, is also the usual result. Pay more- get less!

May 02, 2008 11:56 AM
Rainer
14,969
Terri Habecker
Life Matters & So Does Your Insurance Co
AIG, Allied, Fireman's Fund, CNA, Travelers,The Hartford, Pr

William,

 Travelers, Allied and Farmers does cover Condominium Insurance for Owners. AIG is very expensive, perhaps they are just getting out of that market.

May 02, 2008 03:54 PM
Ambassador
1,224,093
William Johnson
San Diego Real Estate Voice, GRI CRS e-Pro CDPE
RE/MAX Associates
Thanks for the information on these insurers, Terri. I don't think AIG is getting out of the market but they are making it clear that they do not want to underwrite insurance for lenders loans on condominiums in a designated "declining market" areas.
May 02, 2008 04:10 PM
Ambassador
1,224,093

William Johnson

San Diego Real Estate Voice, GRI CRS e-Pro CDPE
Ask me a question
*
*
*
Spam prevention

Accessibility option: listen to a question and answer it!

To submit the form,
drag the world to the circle on the side.

Type below the answer to what you hear. Numbers or words, lowercase:

Additional Information


: The information contained in any post written by William Johnson is deemed reliable but is not guaranteed and the opinions expressed in these are writings are my own. I disclaim any liability for any damages or loses direct or indirect that may result from use of, or reliance upon any information contained in this blog or for the accuracy of comments or opinions expressed by others. You are advised not to rely any information contained herein without your  own verification of the information.