icon on In recent years, condominium and HOA communities have faced heightened scrutiny from mortgage lenders due to stricter underwriting guidelines established by Fannie Mae. As a government-sponsored enterprise, Fannie Mae does not originate loans but purchases and guarantees them in the secondary mortgage market. To mitigate risk, Fannie Mae evaluates condominium projects for financial health, structural integrity, and governance. Projects deemed noncompliant are flagged as “Unavailable”- effectively placing them on a “Do Not Lend” list, making units within those projects ineligible for conventional financing backed by Fannie Mae.
Being placed on Fannie Mae’s list inevitably reduces property values as units remain on the market longer as they must wait for cash buyers. HOA Boards should take the following proactive steps to avoid ineligibility;
- Maintain Adequate Reserves. Fannie Mae requires associations to allocate sufficient reserves for future repairs. Boards should fund budgets based on a professionally prepared reserve study and update it every three years.
- Address Deferred Maintenance Promptly. Unresolved structural issues or safety concerns are major red flags. Prioritize capital repair projects and document all maintenance activities thoroughly.
- Settle pending litigation. Litigation against the association board- especially owner suits regarding building defects or breaches of fiduciary duty will often lead to ineligibility. Association should prioritize expeditious settlement of this type of litigation.
- Limit Investor Ownership. Associations where a single entity owns more than 20% of units or where rental units exceed acceptable thresholds may be flagged. A such Board should consider implementing and enforcing leasing restrictions in the building.
If Your Association Is flagged, the board should work with its property manager to determine why your project was listed and develop a remediation plan. An experienced condominium attorney can then advocate for reinstatement by working with mortgage professionals to request reconsideration with Fannie Mae.