Clarification request for Fannie Mae rules (07-18 announcement)

Greetings,

As the Treasurer of our HOA, I've been asked to sift through the requirements for the Fannie Mae "07-18" announcement on: Lender Delegation of Project Review Processes and Related Changes for Condominiums, Cooperatives, and Planned Unit Developments (PUDs).

I have 2 clarification questions, where I would appreciate any guidance or expertise.

1. Ownership - No single entity (the same individual, investor group, partnership, or corporation) may own more than 10 percent of the total units in the project.

*Question* - Our project has only 5 units. Each owner therefore has 20% ownership, which is out of compliance of this regulation. Does anyone know of an exemption or how we can comply? This seems to be an issue for small projects.

2. Insurance deductible - Lenders must review the homeowners’ association actual budget to determine that it is adequate (i.e., it includes allocations for line items pertinent to the type of condominium), provides for the funding of replacement reserves for capital expenditures and deferred maintenance (at least 10 percent of the budget), and provides adequate funding for insurance deductible amounts.

*Question* - I believe our CC&R states that each unit owner is responsible for covering their share of the deductible, and we have therefore never budgeted this item in our operating or reserve fund. Has anyone had to change that, or how have you handled this requirement?

Thanks for your opinions and expertise in advance.

Hi Mary and others,

Yes, here are some links for clarification on my original post:

The Fannie Mae information is here:
https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2007/0718.pdf

An article that talks about the impact on this and other policy changes affecting condos are here:
http://www.nuwireinvestor.com/articles/will-new-restrictions-crush-condo-market-51710.aspx

A more specific article on Condo Lending restrictions are here:
http://www.baltimoresun.com/business/realestate/bal-re.harney20apr20,0,2345831.story

I don't think this applies to just new projects, since there are requirements for lenders to perform due diligence on things like Reserves Allocations, dues delinquencies, etc. Although the burden is on the lender, this becomes a pass through burden to the HOA to provide documentation to support compliance with this, otherwise, it could affect the ability to sell a condo unit.

Have others seen this and complied? Am I worried about the wrong thing here?

Thanks

TylerH - Regarding the ownership rule it means that if there are 100 units, one person cannot own more than 10 units. You are not out of compliance because one person doesn't own more than 1 unit correct? What I question about that rule is how Fannie Mae will deal its lending practices for new buyers when it comes to new developments. The developer owns, and is in control of the majority of the association for some time. Is Fannie Mae going to deny all mortgagors until those without a mortgage, or without the Fannie Mae restriction, can retain control?

Hi Kirk,

Thanks for your feedback. I guess I don't know where it says anything specific about "investors" owning 10%. The 07-18 announcement says:

"No single entity (the same individual, investor group, partnership, or corporation) may own more than 10 percent of the total units in the project."

As far as I can tell, it is unclear from this if it applies only to those who are are not living in the unit. Do you have any information you can share to clarify that this rule would only apply to investors who are non-tenants? Entity doesn't necessarily imply Investor. That would be welcome news, of course, if that were the case.

Regards,