Plummeting Condo Market Faces More Woes: Mortgage Financing About To Dry Up

Syndicated real estate columnist Kenneth Harney writes in a recent article:

• If you own or plan to buy a condominium, an ominous new phase of the mortgage credit squeeze could be looming on your horizon. As a result of underwriting changes by giant investors Fannie Mae and Freddie Mac, plus severe new restrictions by private mortgage insurers, getting a loan on a condo unit - or even refinancing one you already own - could prove tougher than you imagined.

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• Under Fannie Mae's changes, most of the due-diligence research on condominium projects' key characteristics - their legal documentation, the adequacy of condo association operating budgets, percentage of unit owners who are late on association-fee payments, percentage of space allocated to commercial use, and percentage of units owned by investors - must now be performed up front by loan officers. Not only is this time consuming and costly, but under the new procedures, Fannie Mae expects the lender to warrant the accuracy of its research. Some condo project legal documents run into the hundreds of pages of text, yet lenders are supposed to take legal and financial responsibility for their accuracy.

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• Bruce Calabrese, president of Equtable Mortgage Corp. in Columbus, Ohio, said "everybody is really backing off condos" because of all the restrictions and changes. He said he personally owns two condo units - one in Florida, another in Myrtle Beach, S.C. - and even though he is in the mortgage industry, "I don't think I could refinance either of them right now if I tried."

For more, see Condo financing getting a lot harder in wake of credit woes (San Francisco Chronicle); or Restrictions on condo loans getting severe (St. Petersburg Times).