In late June 2021, America and the world watched in horror as rescuers combed through piles of rubble and everyday household goods looking for survivors of the condo building collapse in Surfside, Florida. After the first few hours, no survivors were found. Ninety-eight lives and 136 homes were lost.
In the following days, information emerged about known issues with Champlain Towers South, and several nearby condo buildings were evacuated because they too had significant deferred maintenance that led to potentially life-threatening structural deficiencies. The tragedy has focused attention on an emerging challenge: significant deferred maintenance of aging condo and co-op infrastructure.
Condos and co-ops are an affordable homeownership option in many markets and a lifestyle choice for many buyers. Fannie Mae has been a secondary market leader in condo and co-op financing for a number of years. With a shortage of housing supply, it’s more important than ever for us to reaffirm our commitment to supporting sustainable homeownership in condo and co-op projects.
In response to increasing concerns about aging infrastructure, Fannie Mae are taking measures to address issues of significant deferred maintenance that may impact the safety, soundness, structural integrity, or habitability of a condo or co-op unit or the overall project and its amenities. (See Lender Letter LL-2021-14, Temporary Requirements for Condo and Co-op Projects.)
Loans secured by units in attached condo and co-op projects with significant deferred maintenance or that have received a repair directive from a local regulatory authority or inspection agency to make repairs due to unsafe conditions are ineligible for delivery to us until required repairs have been made. In support of Fannie Mae updated requirements, They have:
- enacted stricter eligibility review requirements for any condo or co-op project that has issued or is planning to issue a special assessment to address deferred maintenance items that impact the safety, soundness, structural integrity, or habitability of a condo or co-op;
- strengthened lender requirements for review of condo and co-op project reserves; and
- reminded lenders and appraisers that appraisals on units in condo and co-op projects must document any special assessments or deferred maintenance that may impact the safety, soundness, structural integrity, or habitability of a condo or co-op unit or the overall project and its amenities.
Adequate financial reserves are critical to funding the significant maintenance that supports ongoing viability of condo and co-op projects. To maintain homeownership sustainability, Fannie Mae has long required scrutiny of project reserves on loans delivered to us, as well as disclosure of any special assessments and review of a number of other important project characteristics that would impact mortgage borrowers. Our latest guidelines reinforce our project reserve requirements and focus on their importance.
With the new temporary requirements in place until further notice, we are also in the process of conducting a deeper analysis of the challenges surrounding aging condo and co-op infrastructure. We remain committed to providing sustainable homeownership opportunities for a range of housing types and helping to protect borrowers from physically unsafe or financially unstable projects.
