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LEGAL UPDATE - Freddie & Fannie Blacklists

December 19, 2023 11:29 AM | Michelle Wilson (Administrator)

13 Dec 2023 - Not surprisingly, many associations are not aware that Freddie Mac and Fannie Mae have been maintaining “blacklists” for associations they will not underwrite loans for. Fannie Mae recently announced it will make its secret “blacklist” of condos it will not finance available to condo associations and unit owners next year. Its counterpart Freddie Mac, meanwhile, will roll out new guidelines by early 2024 that will enable condos ineligible for financing to appeal their status.

Combined, the two guarantors provide financing for 70% of home loans in the country. Typically, lenders write home loans and sell them to one of the two guarantors while continuing to collect mortgage and escrow payments so being blacklisted is a serious concern for associations. In actuality, the list itself is not meant for public circulation to third parties. Fannie compels lenders to maintain the list as confidential so as not to divulge the details to borrowers.

According to sources, between April and October of 2023, the list grew from about 1,700 to 2,306 properties and based upon status of needed structural repairs, reserves, lawsuits, special assessments and other issues. Additionally, the well-known criteria such as inadequate reserves, inadequate insurance, abnormally high delinquencies, disproportionate commercial space within the association, structural or construction issues, abnormally high outstanding assessments, and too many rentals, can make an association ineligible for Freddie and Fannie financing and susceptible to being blacklisted.

The most obvious consequence to associations is lack of fluidity in their transactions. Given most transactions of purchases within association are made possible through financing, if potential purchasers are blocked from Fannie and Freddie backed loans, the likelihood a deal will close is greatly lessened. In turn the increased difficulty in closing transactions will predictably hurt overall homes values within associations.

Associations asking what can be done to get their associations off these blacklists need to look to “best practices” when it comes to the administration of their associations. It comes down to the aforementioned criteria that have landed them on the blacklists in the first place. In other words, maintain structural components, maintain adequate reserves, maintain proper insurance, minimize uncollected assessments, maintain a balance of commercial and residential homes in accordance with Freddie and Fannie guidelines, and make sure rentals do not exceed guidelines.

In truth, Fannie and Freddie have been using these stringent criteria for many years and they don’t appear to be ready to loosen guidelines any time soon so who are either blacklisted or in dangerous of being deemed so are advised to take corrective action to reverse or prevent that consequence from becoming reality.

Contributed by Cervantes, Chatt, and Prince PC

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