CAI-NJ May 2022 Community Trends

FANNIE MAE... from page 16.

Fannie Mae and Freddie Mac, is that Fannie Mae buys mortgages from larger commercial banks, while Freddie Mac buys from smaller banks. When a potential unit owner either purchases a unit within a community association, or decides to refinance, a lender will originate and fund the loan, but typically with the intent of selling the loan to either Fannie Mae or Freddie Mac. The lender therefore must meet their underwriting require ments in order for the loan to be deemed eligible. Many homeowners are unaware of these types of trans actions on the secondary mortgage market since the bank which originat ed the loan remains what is deemed the “loan servicer”. Community association property managers and attorneys have come to know the lender questionnaires that

associations are asked to complete so a lender has sufficient documenta tion to sell the loan to Fannie Mae or Freddie Mac. There are, of course, other guarantors of loans, such as the Federal Housing Administration (“FHA”), which requires a project cer tification every three years, in order to qualify. Opposed to the FHA practice of maintaining an Internet accessible list of eligible projects, the new Fannie Mae and Freddie Mac requirements create a private database, which is only available to lenders, of communi ty associations that are deemed ineli gible. Among other things, disqualifi cation from Fannie Mae and Freddie Mac can be due to community asso ciations with significant maintenance or unsafe conditions, special assess ments, insufficient reserve funding, or no reserve study. Many may wonder why this a big deal, especially if they believe their association is maintained properly. While that may be the case, the new guidelines now require lenders to obtain written answers to questions concerning building safety, sound ness, structural integrity, and habitabil ity, which were never part of previous lender questionnaires. Most of these questions cannot be answered by the association since the board and its manager are simply not qualified to give such an opinion, meaning they lack the requisite legal and engineer ing expertise. While many states, including New Jersey, have legislation pending to require scheduled structural inspec tions, many associations have not

in the secondary mortgage market. Unfortunately, the new requirements are exceedingly difficult to meet as now articulated. Before discussing the requirements, a brief outline of Fannie Mae’s and Freddie Mac’s importance to the res idential mortgage market may be helpful. Chartered by Congress, and now under the conservatorship of the Federal Housing Finance Agency (“FHFA”), Fannie Mae and Freddie Mac are government-sponsored enter prises (“GSE”), quasi-governmental entities with the purpose of enhancing the flow of credit to mortgage lenders, providing liquidity, stability and afford ability to the U.S. housing market. The primary difference between

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