At the same time, government-sponsored enterprises (GSEs) will eliminate limited and flexible mortgage loan review options beginning Aug. 3, which require a full review of the project in all cases. The change is expected to increase document requests from home owner associations (HOAs) and increase implementation costs, especially for lenders who rely on a shortened review process to speed approval.
These changes also strengthen the financial requirements of condominium associations, raising the minimum reserve requirement from 10% to 15% of budgeted annual income by 2027.
While higher reserves may improve long-term stability and reduce the risk of special assessments, industry participants say stricter standards may increase monthly payments and make it more difficult for some borrowers and projects to qualify.
“It will make it difficult for the condo associations to qualify, or they will have to review their current budget and what they are going to spend, and whether they have enough money in their savings, and if their condo money is enough,” Keely Maguire, founder of senior loans. Novus Home Mortgageyou have been told HousingWire.
As a result, Maguire says many condo associations did not reserve enough money for special inspections, leaving them without the money needed to complete necessary projects or cover rising insurance costs.
“They probably won’t be able to fit into the standard bucket, because they won’t have enough property or keep to their budget. I have a feeling we’ll see an increase in non-QM condos because of this,” he said.
Balancing good and bad
Maguire says the changes, while protecting borrowers and consumers, could have a positive effect. “With these new requirements, you’re going to see a lot of condo associations that won’t meet them, or they’ll have to change things to meet them or raise their HOA fees.”
Another good thing that came out of the changes, added Maguire, is that the GSEs abolished the rule that no more than 50% of the units can be real estate investors. “That’s a good change for investors, but that doesn’t help someone trying to buy a condo as a first-time homeowner, or someone trying to downsize, or anyone who wants it to be a large residence,” he said.
In a letter to Federal Housing Finance Agency (FHFA) regarding changes, i National Association of Mortgage Brokers (NAMB) He praised the agency for tackling rising insurance costs and modernizing condo review standards, but the trade group also flagged the changes as potentially limiting access to first-time buyers.
In particular, NAMB expressed concern about the elimination of the limited review process for established housing projects.
“The limited review process was critical to enabling effective and reliable lending to established communities,” NAMB President Kimber White said in a statement. “Its removal risks disqualification of sound buildings due to documentary challenges rather than real danger.”
In its letter, NAMB recommended maintaining a limited review option for low-risk projects, providing lenders with clear guidance, assessing the impact on first-time buyers, and quickly implementing supportive provisions such as variable insurance and streamlined rules for small condos.
Gino Fronti, president of the West Division Downit has the same feel as NAMB.
“It’s a step in the right direction, but it won’t help all condo properties. It will help certain markets, especially in places like California and Florida, but it won’t solve all the condo challenges we’re seeing across the country,” he told HousingWire via email.
Fronti added that condos still need to be flexible when it comes to maintenance and deferred maintenance.
“In states like California, balcony-related requirements create major challenges where renovations have not been completed. Even in cases where organizations have assessed the work and have adequate reserves, those projects can still struggle to qualify for funding,” he said.
But there is good. Fronti says the simplification of property tax deductions should allow certain condo projects to qualify that were previously ineligible.
“At the same time, the additional reserve requirements make it clear that there is still a strong focus on mitigating the risks associated with special assessments. That will require a level of financial discipline in condo associations that has not always existed.”
