Fannie Mae's New Condo Rules Spell Trouble In Florida

Lending giant Fannie Mae has slapped new rules on Florida condos, rules that do not apply to any other state.

The new rules, which took effect about a week ago, include requiring that no more than 15 percent of a condo's unit owners be delinquent on association fees as a condition of funding home loans to new buyers.

Fannie Mae singled out Florida after discovering record high default and foreclosure rates among condo owners in this state. It also said the excessive number of condos for sale in Florida have driven prices downward.

The new Fannie Mae rules come at a time when many buyers face extreme difficulty in getting condo mortgages. Some banks in the past two years have cut condo lending anyway, and some require down payments of up to 40 percent in new condo buildings.

Here are the three new rules for Florida:

• No more than 15 percent of unit owners can be 30 or more days past due on association fees;
• For new condo buildings and conversions, at least 70 percent of units must have been sold or put under contract -- that's up from 49 percent before enactment of the new rules;
• Fannie will now review condo buildings to make sure they meet the new requirements. In the past, lenders could review the buildings.

Freddie Mac will most likely follow suit and enact similar rules soon. Freddie is the second largest mortgage guarantor behind Fannie Mae.

For sellers of condominiums, this makes finding a qualified buyer even more difficult and will certainly add to the glut of condos for sale throughout Florida. That glut will likely force condo prices even lower in coming months as fewer and fewer condo buildings will qualify for Fannie Mae support due to the cash flow problems associated with the recession and employment declines which may force even more current condo owners to fall behind on monthly maintenance fees.

Frankly, this could be the nail in the coffin for condo sales as Fannie Mae tries to recover from its own financial disaster.

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