Yes, the next leg down for the Florida condo market is potentially in sight, unless developers and associations wise up and move quickly to obtain FHA financing approval.Though this Miami Herald article on the Florida condo financing restrictions does not mention it (though I did tell Monica), there are no FHA restrictions on the Loan to Value (up to 96.5%) or age of condo projects that are eligible for loans insured by the FHA endorsement.Here’s a clip of the article, related to the effects that the new Fannie Mae condo finance restrictions which are primarily made up of a new system called PERS :
Peter Zalewski, whose Condo Vultures realty specializes in bulk sales of distressed condos, said his figures show that as many as 41 new buildings between the Julia Tuttle and Rickenbacker causeways, and from I-95 to Biscayne Bay, may be ineligible for Fannie Mae approval because they don’t meet the new 70 percent ownership threshold.
”It’s devastating,” Zalewski said.
Fannie is not the only source of funding for lenders who want to make condo loans. But John Bancroft, executive editor with trade publication Inside Mortgage Finance, said No. 2 mortgage guarantor Freddie Mac typically follows Fannie Mae’s lead and would likely implement Fannie’s guidelines soon.
The two companies owned or backed nearly $900 billion in new home loans in 2008, more than two-thirds of the market overall. Ginnie Mae is the major guarantor for FHA and VA loans. Few new buildings had been able to meet FHA certification requirements either, Zalewski said.
Because few lenders are holding loans in their own portfolios, the Fannie vacuum could create new opportunities for cash-rich buyers who will be able to command even greater discounts, predicted Grant Stern, principal broker of Miami-based Morningside Mortgage.
”Fannie Mae declared Christmas for hedge funds who want to buy bulk in these buildings, but it’s leaving everyday investors and people who want to buy for their own personal use in the dust,” Stern said.
Stern added the restrictions further exemplified the self-fulfilling, cyclical nature of the credit crisis because Fannie’s action would bring about further price declines, more foreclosures and potentially more losses for the company.
”It starts with fear, then a reaction. Then the reaction causes that fear to occur, which then confirms the fear and causes a further negative reaction,” Stern said.
Another item that’s left out (amongst many) is . . .
that the new system mimics the FHA condo approval system, which leads me to believe that there will be further ramifications in the space.Chief of these potential changes may be for the FHA process to satisfy the new requirements.The FHA approval for a condominium project is the gold standard for acceptance in today’s financing market.The Fannie system, simply applies the same standard, but charges a large fee to do it, restricts access to the largest of lenders (the FHA process is available to all FHA originators) and generally is going to restrict lending in these projects to the preferred lenders (Chase, Wells, Countrywide, etc) and create an even less competitive financing market for buyers of projects that don’t qualify for the FHA guarantee . . .
I am available to process FHA condominium approvals (yes, really), please email me if you have a question.grant at grantstern.com