As Fannie Mae, Freddie Mac increase transparency, condos and HOAs will grow

Apartment and homeowners associations are expected to grow in 2024, exacerbating housing supply constraints and making unit financing more and more important.

That number is expected to increase from 365,000 units in 2023 to 370,000 units in 2024, accounting for almost one-third of the U.S. housing inventory, according to a recent study and forecast from the Community Association Research Foundation.

Neighborhood associations also make up a large proportion of new homes that have become neighborhoods. Key components of total inventory for sale Given that many existing owners are reluctant to sell their homes that they financed at relatively low interest rates.

“About 67% of homes completed in 2023 will belong to a homeowners association, condominium or housing cooperative,” said Dawn Bauman, executive director of the foundation and chief strategy officer of the Community Associations Institute. “That’s a significant amount. numbers.”

New and existing community associations currently account for about 30% of housing stock, as some jurisdictions foster community associations and offload some of the public sector responsibility for property maintenance to private entities.

But for lenders and investors, financing a joint property presents some complications compared with a traditional single-family home because underwriting must consider other factors, such as the financial condition of the building and the potential supercharge of unpaid units. lien.

Beyond that, ever since the infamous collapse of an apartment building in Surfside, Florida, the market has perhaps rightfully become more concerned about the health of this housing stock as it ages.

While the association portion of new home construction is quite large, the overall industry also includes a large number of older buildings that are more than 40 years old, Bowman said.

As a result, influential government-linked mortgage investors instituted stricter rules for Surfside, starting with temporary basisThen in a more permanent form Some lenders find it relatively more practical.

Lenders and associations are not debating whether some rules need to be changed after the collapse, but are seeking to improve communications about which buildings have problems that hinder financing and the procedures available to address such issues.

Investors such as Freddie Mac and Fannie Mae have responded with plans to increase transparency for associations and lenders.

Not just Freddie Streamline processes and open appeals process for associationsFannie Mae plans to “launch a new online lookup tool for homeowners associations and their management companies to view project nonconformity information.”

Fanny’s plan, A recent article on the Government Sponsored Enterprise website briefly statedis expected to be implemented in the third quarter of this year.

While things may be tighter on that front this year, associations and lenders still expect to encounter some challenges.

“Fear over the structural integrity of buildings has created an environment where apartment complex insurance premiums have skyrocketed,” Bowman said.

Bowman said there is anecdotal evidence that some buildings may command premiums of up to 10 times that amount, with one building having a premium of $15,000 one year and $150,000 the next.

“Some of these condo and co-op associations are applying for loans or doing special assessments to pay premiums. We are gathering some data on this topic so we can understand how widespread it is,” she added

Meanwhile, a coalition of groups including Community Housing Lenders of America reiterated longstanding calls for the Federal Housing Administration to make some automated improvements to its procedures for sharing information about apartment loan problems and how to resolve them.

Scott Olson, executive director of the Mortgage Exchange, said that while the FHA has been more transparent than Fannie Mae and Freddie Mac in providing public apartment search tools, its process for identifying and remediating problems has “improved space” group.

(While some mortgage data providers have sought more public access to information from Fannie Mae and Freddie Mac about which properties were approved and which were not, CAI wants them to be more cautious to prevent questionable buildings stigmatized.)

The limitations of FHA’s technology are part of HUD’s broader concerns, including its financing model, which often makes it slower than Fannie Mae or Freddie Mac in automating improvements, Olson said.

this Congress struggles to pass permanent budget Financing challenges will be heightened this fiscal year, but it makes sense given that allocating funds for technology improvements FHA Fund’s latest annual report That shows it’s in a sound financial position, Olson said.

“They make billions of dollars in profits for taxpayers, they have to personally beg to get the bare minimum funding, and when they have IT projects they have to take years to complete without funding up front to operate. Crazy way about railroads,” he said

HUD said in an emailed statement that it does have final plans to “enhance the FHA system for issuing apartment mortgage loans” as part of a broader update.

“FHA is committed to modernizing its technology systems, including those used by program participants when they interact with FHA,” a department spokesman said. “To that end, in addition to the modernization efforts already underway, we are developing a comprehensive The IT Modernization Roadmap will guide our future efforts and ensure FHA’s technology better meets the needs of the agency and its business partners.”

Meanwhile, some lenders in the apartment market say loan origination remains a challenge but has become easier.

“I’m mainly in New York City, which is almost like a swamp of co-ops and condos, and I haven’t had a lot of problems,” said Debra Shultz, vice president of lending at CrossCountry Mortgage. Consumers and investors alike are interested.

Schultz said buildings need to be watched closely for potential problems, but working for a company with multiple investor loan locations and taking a proactive approach can help prevent processing delays.

“When a borrower comes to me and says, ‘I need pre-approval because I want to make an offer on this building,’ I immediately research the building,” Schultz said. He noted that there is a dedicated team responsible for apartments and Building-related internal inventory of departments and their status helps.

One issue Schultz has been focusing on has to do with investor demands for special assessments for building repairs. If these special assessments last approximately 12 months or longer, investors will typically increase debt and income limits.

“I did a similar review recently, but we didn’t factor it into the debt-to-income ratio because there were less than 10 payments left,” she said, noting that it hasn’t been a big concern in her market this year. So far, but probably more common elsewhere.

The extent to which apartments will help address the housing inventory shortage, particularly in affordable housing, remains to be seen this year. Apartments are relatively affordable in many (but not all) markets, but there are some rare exceptions in places within markets, such as New York.

and the sales or appeal of association housing to consumers, according to the latest survey conducted by Zogby International on behalf of FCAR.

The survey, released every two years, found that by 2022, 45% of consumers believe units in community associations make buying or renting more attractive, but another 42% said it has no impact in that regard , which reduces interest in the remaining 13 units by %.

Consumer satisfaction after staying at a joint property is relatively high, but even this may not appeal to everyone. About two-thirds thought the experience was positive, but 22% were neutral and 11% viewed it more negatively.

“Most people who live in community associations have a very good or good experience, but there are almost 75 million people living in community associations, so if 11% of people don’t like their experience, that’s a big number. . But for the most part, people are very happy,” Bowman said.

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