Fannie Mae to review rehabbed condos before financing
Fannie Mae directed approved lenders to begin submitting rehabilitated condominium projects to the government-sponsored enterprise for review before qualifying the loan for secondary market trading, according to a selling guide released Dec. 1. When many buildings are converted to condos, major components are rarely replaced, which can lead to increased costs to unit owners for maintenance and major repairs. Fannie used to delegate the review of these conversion projects to the lender, but now the GSE wants to do it through its Project Eligibility Review Service. This, Fannie said, will increase funding reserves, minimize future potential financial hardships for the unit owners and help ensure a project is sustainable for a longer period of time. As part of the review, all projects are subject to an on-site inspection by Fannie Mae, and an independent company must prepare a reserve study, as well. Project budgets must account for the costs in the study and include a utility contingency of at least 10% of the previous year's utility costs. Any money needed to cover the cost of any items in the study or engineer's report that will need to be replaced within five years of the study must be deposited into the homeowner's association reserve account ahead of time. Projects involved in litigation and any conversions from hotels or motels are not eligible for financing. In January, Fannie launched a review of hundreds of condo projects in Florida in order to breathe new life into that origination market. As of Nov. 29, those six Fannie Mae employees have cleared 170 projects for financing. Write to Jon Prior.