New condo loan rules add headaches
TEXT OF INTERVIEW
Tess Vigeland: In my daily commute I've noticed something: new condos are just everywhere! But if you're planning on owning a condominium anytime soon, you might be in for a big surprise.
Mortgage giants Fannie Mae and Freddie Mac recently introduced new requirements for condo loans and the changes may make the dream of owning real estate a lot tougher to fulfill.
David Lereah is an economist with ReKon Advisors. David, what are these changes by Freddie and Fannie and are they a good thing?
David Lereah: The changes were, at least in the beginning, good in terms of its direction and its purpose. If we're looking at Fannie Mae and Freddie Mac, they're expecting lenders to do more due diligence on condo projects then they have ever done before. They expect lenders now to be looking at legal documents, association operating budgets, the percentage of unit owners that are late on their fee payments. All of this must be performed now by loan officers.
Vigeland: Who did this before? Would it be up to the borrower to check on all these sorts of things? Is, basically, the responsibility being shifted?
Lereah: No one really claimed much responsibility for it. The lender did some of it, the borrower should have done some of it, but because of the misleading transactions that have taken place, particularly in the condo marketplace, Fannie Mae, Freddie Mac now are getting more strict, placing a great deal more burden on the lender rather than the borrower.
Vigeland: So what's the practical effect then if you're looking to buy a condo? Is it simply going to be tougher because lenders don't want to bother with this sort of thing?
Lereah: It will be tough and I do think that lenders... a good number of them just won't know what to do because it's very intimidating: hundreds of pages of documents that these condos have and now we are expecting a loan officer to go through those documents in a very careful manner. We may see that some of these deals just don't get done because the lender may not just want to go through so much trouble to get the transaction done.
Vigeland: So, do these new rules and requirements apply to loans where you're getting, say, a new condo or could this also affect you if you're trying to refinance?
Lereah: It will affect refinancings as well and this certainly could hurt the condo market.
Vigeland: Is there anything that a condo owner can do to make it more viable for a lender to go ahead and refinance with them?
Lereah: I think it's really incumbent right now upon the condo owner to get their house in order so to speak. They've got to be aware of the documentation now that is going to be necessary. This information will start to trickle down over time and hopefully it'll just become commonplace and they'll know what to do, but right now we're in a transition period. It will harm rather than help the market in the beginning, but maybe in the end, it will make this condo marketplace a healthier market for everyone.
Vigeland: David Lereah is an economist with ReKon Advisors. Thanks so much.
Lereah: Thank you very much.